Interchange Fees - A Brief Overview

What Are Interchange Fees?

Interchange fees are charges that merchants pay to card issuers when customers make purchases using credit or debit cards. These fees are determined by payment networks like Visa, Mastercard, Discover, and American Express. They help cover costs for processing transactions, issuing cards, fraud prevention, and funding credit card rewards programs.

The fees typically include:

1. A Percentage of the Transaction Amount: This varies by card type, transaction method, and industry.

2. A Fixed Fee: Added to the percentage charge, often just a few cents per transaction. Merchants don’t see these charges directly itemized in transactions but often account for them by raising prices or imposing minimum purchase requirements for card payments.

Interchange Rates by Card Type

Credit Card Rates

Credit cards generally have higher interchange rates than debit cards due to increased risk and the need to fund rewards programs. Premium cards like cashback or travel rewards cards often have even higher fees.

• Mastercard Credit Cards:

  • World Elite (Restaurant): 2.00% + $0.10

  • World Elite (Airline): 2.55% + $0.10

  • Charities (All Cards): 2.00% + $0.10

• Visa Credit Cards:

  • Signature Preferred/Infinite (Supermarket): 1.65% + $0.05

  • Traditional Rewards (Fuel): 1.15% + $0.25

  • Traditional Rewards (Travel): 1.95% + $0.10

Debit Card Rates

Debit card fees are typically lower than credit card fees due to reduced risk for card issuers. Debit transactions directly withdraw money from a customer’s account, and fees are capped under U.S. law.

• Average Debit Card Fees (2022, Federal Reserve data):

  • Discover: $0.24 (0.47% of transaction value)

  • Mastercard: $0.24 (0.48%)

  • Visa: $0.22 (0.45%)

U.S. regulations under the Durbin Amendment cap debit card fees at:

• 21 cents per transaction

• 0.05% of the transaction value

• A 1-cent fraud prevention adjustment for issuers meeting certain standards.

Factors Influencing Interchange Rates

1. Card Type: Credit cards incur higher fees than debit cards. Premium cards (e.g., rewards or corporate cards) charge more.

2. Transaction Type: Fees are higher for online purchases due to increased fraud risk compared to in-person transactions.

3. Industry: Different industries face varying rates; charities and supermarkets often have lower rates than airlines or restaurants.

4. Payment Method: Chip-enabled, PIN-enabled, or tap-and-pay methods can affect fees.

For more comprehensive details, visit the full article on Investopedia.