How does interchange fees work

Select personalised content. Create a personalised content profile. Measure ad performance. Select basic ads. Create a personalised ads profile. Select personalised ads.

Apply market research to generate audience insights. Measure content performance. Develop and improve products. List of Partners vendors. Your Money.

Personal Finance. Your Practice. Popular Courses. Personal Finance Banking. What Is an Interchange Rate? Key Takeaways Interchange rates are a per-swipe fee charged by banks to merchants using credit or debit cards.

The fee is justified as a buffer against the credit risk of consumers who borrow to make these purchases that financial companies become exposed to. The fee usually takes the form of a small percentage of the overall transaction amount and is currently higher for credit than debit cards to account for the additional risk of a credit transaction. Article Sources. Investopedia requires writers to use primary sources to support their work.

These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate.

You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy. Card-issuing banks, payment processors which may or may not be the issuing bank , credit card payment networks like MasterCard and Visa, payment gateways , and the merchant's own bank will all charge a percentage-based fee on every transaction, and these charges frequently appear as a single, bundled amount on the bills your payment processor hands you.

Even this is something of an oversimplification, however, since there are actually about individual interchange fees composing the "single" interchange fee you actually pay.

Based on the costs of moving money, the time value of money in terms of current interest rates, and the relative risk involved, credit card companies set and regularly adjust their interchange rates. Visa and Mastercard, for example, change rates twice a year, in April and October.

Interchange fees are determined by a large number of complex variables. To simplify the cost for merchants, credit card companies compute interchange into flat rate plus a percentage of the sales total including taxes. In the U. Using a combination of cards for your daily spending could earn a high return in many categories. Is the Delta SkyMiles Gold the best for your needs?

Our analysis can help you decide. The Amex Platinum card is a luxury credit card with tons of benefits. View current credit card rates based on Bankrate. Read on to find out our take on the card. Glossary I Interchange fee Interchange fee Interchange fee is a money term you need to understand. What is an interchange fee? Deeper definition When a consumer pays for a purchase using a credit card or debit card, a number of things happen in a very short space of time, including requesting and receiving authorization and processing the payment.