You must be wondering what interchange rates for credit cards are, especially if you are new to the world of credit cards. Interchange fees are charged to users by the credit card companies for processing a debit or credit payment. Interchange fees are received by the card company, but they pay it to the bank that issued the card. For a credit card payment, the average interchange rate is 1.81%. The average fee for a debit card is 0.3%.
What is an Interchange Fee?
When a transaction is processed through a credit card or debit card, funds are transferred from one bank to the receiving bank, commonly known as the merchant bank. Businesses need to ensure their merchant bank is fully equipped to receive payments, which is why European merchant services are so useful. This allows payments to be received in nearly any currency and preferred payment method globally. Associations like Visa and MasterCard ease the process of interchange rates.
These associations collect funds from the acquiring bank, which is known as the interchange fees. The interchange fees consist of a percentage of the overall transaction with added fixed amount (e.g., 3% + $0.1%). It is the card associations that regulate the fee, and the price is paid to the issuing bank. The card associations also collect a separate fee known as the network fee.
The network fee is not a part of the interchange fee. The network fee is far less than the interchange fee, an average of around 0.05%.
Average Interchange fees for Visa and MasterCard
The largest card network companies in the world are Visa and MasterCard. Merchants, when dealing with these two, will face more interchange fees more often. The interchange fee will vary mainly on the type of card being used.
The debit card has much lower interchange rates than credit cards. Besides, high-end reward cards are more charging interchange fees than non-rewarding ones. These interchange fees will also vary depending on the type of transaction made. The interchange rates depend on the card type and the transactions.
- If the card is Visa Debit Retail CPS, then the interchange rate for swiping cards is 0.800% + 15¢ and the interchange rate (keyed) is1.650% + 15¢.
- For Visa Debit Retail CPS Regulated the interchange rate for swipe is 0.050% + 22¢, and the interchange rate (keyed) is 0.050% + 22¢.
- For Visa Debit Retail Business card, the interchange rate (swipe) is 700% + 10¢ and interchange rate (keyed) is 2.450% + 10¢.
- Visa Debit Retail Business Regulated card has interchange rate (swipe) is 0.050% + 22¢ and for keyed it is 0.050% + 22¢.
- For Visa Credit Retail CPS card, the interchange rate (Swiped) is 1.510% + 10¢, and interchange rate (keyed) is 800% + 10¢.
- For Visa Credit Retails Rewards Traditional Card, the interchange rate (swiped) is 650% + 10¢ and interchange rate (keyed) is 1.950% + 10¢.
- For Visa Credit Retails Rewards Signature Card, the interchange rate for swiping Is 300% + 10¢ and it is 2.700% + 10¢ for keyed.
- For Visa Credit Retails Reward Signature Preferred Card, the swipe’s interchange rate is 2.100% + 10¢, and it is 2.400% + 10¢ for keyed option.
- For Visa Credit Retail Corporate Card, the interchange rate for swipe is 2.100% + 10¢, and for keyed, it is 2.650% + 10¢.
- For MasterCard Debit Retail Swipe Card, the interchange rate is 1.050% + 15¢, and for the keyed option, it is 1.600% + 15¢.
- MasterCard Debit Retail Regulated Card has an interchange rate for swiping is 0.050% + 22¢, and for the keyed option, it is 0.050% + 22¢.
- MasterCard Credit Retail Consumer Card has interchange rate for swipe is 580% + 10¢ and foe keyed the interchange rate is 1.890% + 10¢.
How are interchange fees changing in 2021?
Visa and MasterCard upgrade their interchange fees twice a year, usually in April and October. Some rates are increased in the updates, while some of them are lowered. Visa was all set to update its interchange fee in October 2020. Because of the pandemic, the company has delayed the changes to April 2021.
Similarly, MasterCard has also postponed its upgrade. Many interchange fees would have been lowered, but it could have improved the e-commerce transactions. A problem has arisen in recent years, i.e., online credit card fraud. The proposed higher rates showed higher levels of risk taken by the banks.
MasterCard and Visa are in full action to overcome this problem. Tokenization measures are taken for this purpose. The update will include lower rates for online transactions, which prefer tokenization to encourage this type of security measures.
If the interchange fee is increased, it will cause a lot of problems for many merchants. This will be really problematic, especially when e-commerce is at its peak. That is why MasterCard and Visa have postponed their update because there will be many outcries from the public. This a good decision for the eCommerce industry. MasterCard and Visa will announce their update in April. It is better to make use of tokenization in your business.
Interchange fee for Visa in 2021
CMSPI found that $768 million yearly for visa changes. It is known that Visa will add a 20% increment to the interchange fees. This will increase the company’s overall processing fees. Few companies with a higher percentage of B2B transactions or utilizing business cards should face the increased interchange fee based on the volume.
Interchange fee for MasterCard
MasterCard has also increased its interchange rate on all commercial products in the EEA region. The current fee of 0.80% will increase to 1.25% for business cards and 1.50% for corporate cards. MasterCard believes that this revision of interchange fees will serve as a hallmark in the e-commerce industry.
What will happen when the rates increase?
You should watch out for these changes when the interchange fees will be updated.
Standard Interchange Increase Levels:
- The standard visa fee will go from $29.50 to $31.50 when you process a customer payment of $1000.
- With the same transaction from a visa business card, the fee will increase from $25 to $30.
How the Processor will respond
- Whenever MasterCard or Visa card changes the interchange fee, the processor will also increase the fee at the same time.
- They increase the fee because they were already expecting an increase.
- They think that clients won’t notice this slight increase.
- Some processors are straightforward and clearer than others. A fair processor will not report the increase in interchange fees on your behalf.
Action Plan
- Most merchants are of the view that interchange fees cannot be reduced.
- Depending on the type of your card and transactions, steps can be taken to avoid an increase like this.
Conclusion
You can use interchange rates to get the best rates on credit card processing. The only way to decrease your interchange fee is to pass them onto the customers. This is called surcharging, where your customers pay a higher price for using credit cards to cover your processing costs. Cash discount merchant services programs can also be implemented where the customers get a discount when paying with cash.