Fluctuation in Interchange Overheads
Interchange rates are a key part of any business that accepts card payments. Understanding how often these rates change and the impact on costs is essential for merchants. While interchange pricing is often considered transparent and can benefit larger merchants, it’s a fluctuating component that requires regular monitoring.
This article explains how often interchange rates change, their impact on businesses, and the factors that influence these adjustments in a friendly, accessible way.
What Are Interchange Fees?
Interchange fees are charges set by card networks, such as Visa and Mastercard, each time a customer makes a transaction using a credit or debit card. These fees are initially paid by the merchant's payment processor, which then passes them on to the merchant as part of the overall service charges.
The costs vary widely based on region, type of transaction, and even the card used. In the UK and Europe, interchange fees generally range between 0.3% and 0.4% of the transaction amount, while in the US, they can be as high as 1.5% to 3%.
How Often Do Interchange Rates Change?
Visa and Mastercard update their interchange rates twice a year, typically in April and October. These changes reflect adjustments in transaction costs, risk levels, interest rates, and transaction volume patterns. Other card networks, like American Express, don’t always follow a set schedule, and some do not make rate changes publicly available.
Because these rates can change, it’s helpful for merchants to monitor interchange rate announcements from their payment processors or the card networks themselves.
What Factors Influence Interchange Rate Adjustments?
Several elements impact interchange rates, which can shift the scheduled adjustments by card networks:
- Transaction Type: Card-present transactions, like in-store payments, typically incur lower interchange fees than online transactions, which carry more risk.
- Geographic Region: Rates differ across regions due to local regulations. The UK and European Economic Area (EEA) have lower rates due to regulations that cap fees.
- Card Type: Credit cards often have higher interchange fees than debit cards, and premium or rewards cards may attract even higher fees due to the benefits they provide.
- Risk Levels: Card networks assess the risk associated with each transaction type, leading to higher fees for higher-risk transactions.
- Market Conditions: Factors like interest rates, economic conditions, and operational costs all play a role in influencing interchange rate changes.
How Do Interchange Fees Impact Businesses?
For many businesses, interchange fees make up a significant portion of total payment processing costs, often between 70% and 90%. As a result, managing these fees can be a top priority.
To lower interchange costs, some businesses encourage customers to pay using methods with lower fees, like debit cards or cash. Others may add surcharges for credit card payments, where legally permitted, or carefully choose a payment processor that offers competitive rates based on negotiated agreements with card networks.
How Are Interchange Fees Calculated? Each transaction has a unique interchange fee, typically a percentage of the transaction value plus a fixed fee. For instance, Visa may charge between 0.2% and 1.9% per transaction in the EU/EEA region, while in the US, fees can reach up to 3.15% with an additional per-transaction charge.
Since each fee depends on a variety of factors, it's difficult to estimate interchange costs accurately in advance.
Will Interchange Fees Decrease?
Interchange fees have garnered increased attention from regulators in recent years. While regulatory efforts have capped fees in regions like the UK and EEA, keeping them relatively low, the US has seen less regulatory intervention. For instance, the Durbin Amendment in the US limits debit and prepaid card fees to 0.05% of the transaction plus $0.21, but this does not apply to credit cards. In the EEA, interchange fees are capped at 0.2% for debit cards and 0.3% for credit cards, with higher caps for interregional, card-not-present transactions.
There is ongoing debate about further reductions to interchange fees, but any substantial decrease will likely depend on future regulatory changes and shifts in market conditions.
Saving on Acquiring Costs with Merchant Advice Service
While interchange fees are non-negotiable, as they’re set by card networks and regulated in some regions, acquiring costs—the fees paid to payment processors—can often be reduced with the right strategy. Partnering with a service like Merchant Advice Service (MAS) can help businesses uncover these savings. MAS specialises in analysing transaction data and negotiating with acquiring banks to secure more favourable processing rates tailored to a business's needs. By optimising acquiring costs, businesses can achieve significant savings, helping to keep overall payment processing costs manageable despite fixed interchange fees.
