What is interchange?
In the payments processing industry, interchange typically refers to the categories of base rates assessed by the Card Associations (Visa and MasterCard) for transaction related costs. There are many levels (tiers) of interchange. Each transaction, regardless of the merchant’s discount rate, is charged interchange by the Card Associations. The most common interchange category assessed is for card-present, swiped transactions. Interchange is published at www.visa.com and at www.mastercard.com. Interchange acts as the base rate on which banks mark up to their merchant account providers. Merchant Account Providers, also known as Independent Sales Organizations or ISOs, then mark up the rate they receive from the bank so that they can be compensated for their services. The resulting rate is known as the Discount Rate.
Interchange is the clearing process that card associations such as Visa® and MasterCard® facilitate to settle transactions between banks that issue credit cards and banks or service providers that process card transactions for merchants.The interchange process makes it possible for customers with credit cards from hundreds of different banks to make purchases at thousands of merchant locations. As part of the interchange process, card associations charge banks or service providers that process card transactions an interchange fee for each transaction. This fee goes to the cardholder’s bank, known as the issuer, as compensation for expenses incurred in providing lines of credit to cardholders. Interchange fees make up a part of your merchant discount rate. The other part of your discount rate—the processing fee—compensates the bank that provides authorization, deposit, and settlement services for your transactions.
Interchange is the percentage and transaction fee charged to merchants to process credit/debit card transactions. Interchange is priced at the transaction level and depends upon the combination of industry category code, the method by which cards are accepted, the card product, and sometimes even varies by transaction size. All banks and merchant processing companies operate from the exact same Interchange, Dues and Assessment costs.
