Interchange fees are what credit card issuers (Visa, Mastercard, American Express) charge for processing cards. The fees are paid to the card-issuing bank to cover handling costs, fraud and bad debt costs involved in approving a payment.
When a merchant takes card transactions, the merchant’s bank will charge a percentage-based fee on every transaction. These charges often appear as a single fee. This percentage is based on many varying factors and are non-negotiable. Furthermore, these fees are flexible, meaning interchange fees are not a flat percentage rate but increase or decrease depending on several variables.
The rates of Visa and Mastercard change their rates twice a year, and this rate can also differ geographically. On average, interchange fees are around 0.3/0.4% of the transaction amount in Europe and are 2% in America.
Several transactional factors affect the interchange rate:
Card Type: Debit cards with PINs have a lower interchange fee than credit cards because they are less risky. Loyalty and Reward cards pay for the perks given to cardholders by charging higher interchange rates to businesses which is why some companies refuse to take AMEX, for example.
Business Size: The Larger your business, the more transactions you bring in. This means that larger businesses can negotiate lower interchange fees than smaller businesses that make only a small number of transactions each day.
Transaction Type: Point of Sale transactions (POS) are less precarious than card-not-present (CNP) because POS transactions offer three forms of verification: chips can be scanned, a signature taken, or a PIN entered. Because of this, the handling fee the bank charges on POS transactions is far smaller than CNP transactions.
How BMS can help.
We understand the frustration around interchange fees. Mastercard and Visa have total control over their set rates, leaving merchants helpless. Recognising the frustration many merchants face surrounding interchange fees, Bespoke Merchant Solutions will change our fees according to Mastercard and Visa, so if their interchange rates go up, our rates will go down, guaranteeing you maintain any savings you have made
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