What is Interchange?

Interchange is the “wholesale price” for processing credit card transactions, set by Visa and MasterCard (and their stakeholders like banks). It’s the price paid by a merchant’s bank to the card-issuing bank whenever a credit card is used.

You can think of Interchange rates as similar to the cost of parts needed to build a bicycle—it’s a base cost from which everything else is calculated.

Interchange rates change regularly—usually twice a year (in April and October)—so it’s important to stay updated on these changes to avoid overpaying for processing.

Factors Affecting Interchange Rates

Interchange rates vary depending on the type of card and how it’s used:

• Credit vs. Debit: Debit cards generally have lower rates than credit cards.
• Rewards Cards: Cards with rewards programs usually come with higher rates.
• Transaction Risk: Higher-risk transactions (like online purchases) typically have higher rates.

Just like a Bicycle Shop can choose different parts for bikes, the type of card or transaction method can affect processing costs.

Other Costs

In addition to Interchange rates, there are other costs associated with processing credit cards, such as:

• Capturing, Authorizing, and Settling Transactions: These are costs for handling and completing each transaction.
• PCI Compliance: Fees related to security standards.
• IRS Reporting: Fees for tax-related reporting.

These are similar to the additional costs any business might experience   like labor and overhead. All of these costs are added on top of the Interchange rate.

Why Understanding Interchange is Important

If you’re a business owner, understanding how Interchange rates work can help you avoid being overcharged and make better decisions about credit card processing. Just like you wouldn’t want to buy a product or service from a business that cuts corners, you don’t want to work with a credit card processor who isn’t transparent about their rates and fees.

By working with a reputable processor and understanding the cost structure, you can ensure fair pricing for your business.

Cheri Perry

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