What’s an Interchange Fee and is it Worth Paying?

So you’ve got a business and you want to accept major credit cards. The more ways people can pay, the better – but what about that “interchange fee” (and other processing costs) added to each transaction by your merchant services provider? Is it worth deducting a percentage every time you make a sale for the convenience of accepting credit cards? That’s a question we get a lot, and yes, it is worth it. We’ll explain why, but first a bit of back story on the process.

In this digital, increasingly paperless age more consumers are paying for transactions with plastic rather than cash. Fees for card processing services are unavoidable, but there are ways to reduce them and manage their impact on your profit margins.Every time a customer taps, inserts or swipes a credit card, card associations like Visa and Mastercard jump in to facilitate the transfer of funds from the card’s issuing bank to the acquiring bank. For this service, these card associations collect “an interchange fee” from the acquiring bank which then goes to the issuing bank. Well then, how does Visa or Mastercard make their money? They collect something called a “network fee” which averages around 0.05% per transaction. Much smaller than the 0.2 % or higher interchange fee the issuing banks receive, it still keeps them in business with billions of transactions processed each year. Using Visa and Mastercard as an example, it’s important to note that Discover conducts business in a similar way as does American Express with a slight variation in terminology. Amex calls their “interchange fee” a “discount rate” and with more premium credit cards in their portfolio, generally charges a higher percentage on credit card transactions. Standard interchange fees and discount rates vary, with detailed information available by clicking the links below.

Now that you know what an interchange fee is and how much credit card companies charge, is it worth it for you to pay? We think so.
Afterall, the more options you give customers to pay for goods & services, the more likely you will increase sales and attract repeat business. The world is also becoming more of a “cashless society” with many people (especially Millennials) preferring not to carry money on their person. Unlike those using cash, these credit card carrying customers are likely to spend more when they are not restrained by a finite amount of dollars in their wallets.

Stay ahead of the times with Card Connect Gold Coast. From processing systems that benefit business-to-business merchants and P2P encryption that protects your most sensitive information and make payments more secure, we are on the forefront of payment technologies. Merchant accounts, credit card processing, universal commerce, point-of-sale (POS), payment processing, we do it all. Contact us today online or by phone at (800) 823-2131.