Interchange

October 3, 2009

October 3, 2009

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Credit card processors don’t get to keep the majority of the money they collect from their customers.  Most of it gets passed along to the banks that issue credit cards (list of largest credit card issuing banks). The amount that is passed on actually varies depending on the traits of each individual transaction.  The rules […]

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Credit card processors don’t get to keep the majority of the money they collect from their customers.  Most of it gets passed along to the banks that issue credit cards (list of largest credit card issuing banks). The amount that is passed on actually varies depending on the traits of each individual transaction.  The rules that define how much each transaction costs are defined in these documents: Mastercard Interchange and Visa Interchange.

 

The important variables that determine the interchange rate for a transaction are:

  • Kind of card (rewards cards are more expensive, debit cards are less expensive, business cards are more expensive)
  • Type of transaction (cheaper if the card is swiped through a terminal in a face-to-face transaction, more expensive if done over the phone or internet)
  • Industry of the business (some businesses that have historically gotten paid mostly with checks, like utilities, insurance companies and supermarkets get lower rates to encourage them to accept cards)
  • Size of transaction (smaller transactions are given a lower rate, to make it affordable for businesses like coffee shops to accept credit cards)

Credit card processors make money by charging their customers more than the interchange rate for each transaction.

Unless you have an interchange-plus arrangement with your credit card processor, it can be hard to figure out how much of the money you are paying goes to interchange and how much the processor keeps.  Our free and easy to use tool, the credit card processing calculator can help you figure that out.

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