Interchange (aka "interchange rates" or "interchange discount rates") is shorthand terminology for the more technically correct term "interchange plus dues & assessments", and refers to the cost of credit card transactions.
There are may "players" that come into the process of processing credit card transactions, and the interchange rates are passed along through each of them all the way down to the business who is accepting a consumer using a credit card to buy something.
Interchange rates are set by the credit card associations (Visa, MasterCard, Discover, AMEX) and will vary slightly based on what each entity decides they want to charge.
Different types of credit card transactions will have different interchange fees associated with them, and it mainly has to do with the associated risk.
When evaluating merchant account provider pricing models, think about interchange as the cost a merchant account provider has to pay to VISA/MC and issuing banks to provide you with credit card processing services. The merchant account provider will then mark-up the interchange fees to the end user, and make a profit on the margin (difference).
Every merchant account provider has the same base interchange fees to pay to VISA/MC and issuing banks - but they do not all charge the same markup.
The 2 main cost components that makeup interchange rates:
Interchange Fee = Discount Rate + Transaction Fee + Dues & Assessments
Remember from the intro, when we say "interchange" we are really talking about "interchange plus dues and assessments".
When evaluating which merchant account provider you will choose for your business it is important to understand that they all have to pay the same interchange fees. No matter what, they all have to pay that.
So, why do their rates differ? Margin.
Pro Tip: When evaluating a merchant account provider, remember that they are all paying the same interchange fees. Their prices will differ based on their margin, aka how much they mark-up that cost.
The interchange rates are adjusted biannually - every April & October.
Remember that interchange rates will vary with different credit card transactions (generally aligned with the degree of associated risk) and these difference are governed by 3 main factors.
There 3 main factors that dictate interchange rates:
Interchange rates change to control consumer fraud and to account for perks, rewards, etc.
Different card types have different levels of risk associated with them.
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