All of these transactions, however, come with a price. The credit card institution tacks on an interchange charge that the merchant or supplier must pay whenever customers swipe a credit or debit card, whether physically or digitally, on the internet. These small costs, often known as swipe fees, may add to huge budget busters for many large and small enterprises. 

Interchange fees cover the expenses of accepting, processing, and approving card transactions. Many factors might impact the fee amount, making it difficult to estimate the precise amount of the costs.

We've put together this quick guide to explain interchange costs, the variables that influence them, and where you can search up interchange fees per card network.

What are interchange fees?

When a customer or a business purchases products or services from a merchant or supplier using a credit/debit card, the credit card company charges the merchant selling the commodity or service an interchange fee (or rate). Credit card costs are higher than debit card fees, yet they only account for a small portion of the purchase price.

Financial services businesses adopt these swipe fees to earn revenue and as a "buffer" or hedge on accepting the short-term credit risk when a client borrows money from the financial institution to buy anything. Other costs, such as credit fraud and chargebacks, are also covered by the fees.

How are interchange fees calculated?

Interchange fees are calculated using various criteria, but financial institutions base them on financial risk statistics and the expenses of processing and moving money, among other things. These fees are determined by credit card networks such as Visa, MasterCard, American Express, and Discover once or twice a year.

Recently, Visa and MasterCard announced interchange fee figures. If you check Visa or MasterCard’s interchange fees, you'll see that the final (single) interchange price you pay is made up of many interchange fees. 

Every consumer transaction you process through your website incurs a cost from credit card networks like Visa and MasterCard, payment gateways and processors, card-issuing banks, and your company bank account. It's a percentage charge depending on the overall transaction amount, and it's typically included on your payment processor's invoice as a single, combined number. It becomes difficult for merchants to pay these fees since the sum they must pay usually varies depending on certain transaction circumstances. The following are the many factors that will influence the charge amount:

Card type

Interchange fees vary depending on the kind of card and the financial institution issuing it. Debit cards offer cheaper fees than credit cards due to a lesser chance of fraud. Interchange costs on rewards cards might be greater than on regular cards.

Card network

Interchange costs vary depending on the type of company and its size, such as grocery stores vs. boutique gift shops. Interchange fee charges are also affected by the size of the firm. Large corporations, for example, may be able to negotiate cheaper interchange fees with financial institutions than small enterprises.

Transaction type

How the transaction was completed is another factor that influences interchange costs. Was it purchased through a cash register, mail order, or online? 

Card-present vs. card-not-present - Card-present (CP) transactions have a reduced risk of fraud than card-not-present (CNP) transactions, resulting in lower interchange rates (i.e., online or digital payments).

Domestic vs. cross-border payments - It's a domestic transaction if the cardholder's bank is located in the same nation as your company. And it's typically less expensive than cross-border transactions if the card-issuing bank and your company are not located in the same country.

What are the average interchange fees companies charge?

Interchange costs in Europe are typically roughly 0.3 - 0.4% of the overall transaction value. It is 2% in the United States. Card schemes determine interchange fees, which you cannot bargain with. Card networks also regularly adjust the rate rates; for example, MasterCard and Visa announce new rates every April and October. Today, the best approach to determine actual costs is to visit the card scheme's website.

Difference between interchange++(plus-plus) and blended prices

Interchange++ (Interchange Plus Plus) and blended pricing are the most common pricing structures for card transactions. The main distinction between the two is transparency.

Interchange ++(plusplus)

You may thoroughly analyse the three-card payment processing costs you learned about before using Interchange++. The interchange charge, the card scheme fee, and the acquirer markup fee are all fees you must pay. You're only charged the actual interchange price, which can be cheaper than if it were set because interchange fees vary based on various circumstances.

Blended pricing

Using a blended pricing model, you'll be charged the average processing cost plus a set markup fee. The markup charged for each transaction is the same in this situation, and you can't see how expenses are distributed. It's simpler to comprehend, but it's not transparent. There's no way to tell if decreased exchange rates save you money.

Wrapping up

Interchange fees have become a significant financial factor for many businesses, whether small businesses or giant corporations, with many screaming foul. You might be concerned that interchange fees would eat into your revenues, but the advantages of accepting additional online payment methods outweigh the expenses of interchange fees. In short, you could attempt things like pushing people to use specific card types or shopping in person. Still, these minor tweaks will gradually detract from the customer experience and turn off potential and current customers. 

You'd be better off looking for alternative methods to save costs in your company. Allowing clients to pay with credit or debit cards is critical for increasing customer happiness, conversions, and brand loyalty, regardless of the size of your business or the items you offer.