How do Banks and Payment Processors Calculate the Interchange Fees?

Businesses today approve credit card and debit card transactions when it comes to online shopping. On the other hand, they have to pay interchange fees based on them. The card issuing companies, banks, and payment processors will charge the fees for their services. A merchant should pay the fees at a later date after getting a notification. The interchange fees may vary and a merchant should be aware of them in detail. This gives ways to gain more ideas easily that will help meet essential needs.

How are interchange fees determined?

The interchange fees involve a percentage of fees on every transaction when a customer uses a credit card. Each card network has its own fees and they are subject to revision twice a year in April and October. Most card networks will determine the fees based on the sales amount and a fixed fee. Therefore, it is wise to choose a payment processor properly that gives ways to overcome any unwanted problems. Another thing is that businesses can streamline their revenue and operations with low interchange fees.

What are the important factors involved in interchange fees calculation?

In many cases, card issuing companies or banks will categorize a transaction to determine the applicable rates. A business should know them properly to process card transactions without any hassles. Some of them include:

1. Card payment type 

Customers often use cards for retail and online purchases while ordering a product. At the same time, card-present transactions have low rates when compared to card-not-present transactions. Hence, it is necessary to encourage the first one which gives ways to lower the interchange fees. A business should send notifications to customers that explain the benefits of paying in person while visiting a store.

2. Data submission 

Data submission is another factor that decides the interchange fees. This is because entering data correctly will help ensure a secured transaction. Data regarding AVS services or card security codes allow a business to lower the fees to a large extent.

3. Merchant category code 

merchant category code, shortly known as MCC, plays an important role in deciding the interchange fees. It is a four-digit number used for knowing the activities of a business and card issuers will fix the fees based on them.

4. Card type

The debit card and credit cards involve different types that will influence the interchange fees significantly. Some of them include premium, standard, and signature which determine the fee when a customer uses them.

5. Business or industry type 

The card issuing companies will decide the interchange fees based on the business or industry type. For example, high-risk businesses have to pay more amounts while processing card transactions of customers.

6. Card brand

The card brand will impact the interchange fees and cards that come with special rewards can influence the same effectively.

7. Sales volume 

It is one of the most important factors which determine the interchange fees. Businesses that are having high sales volume and transactions have to pay more.

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