What is Interchange?

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Whenever a customer uses a credit card, the merchant has to pay a percentage of the transaction. This fee consists of interchange and assessments. Interchange is the fee charged by the issuing bank directly to the acquirer. The acquirer up-charges this fee in order to make a profit. Diners Club, JCB, American Express and Discover all set their own discount rates.

Because of the difference in interchange rates, acquirers all set their own fees. There are four main variables when setting your discount rate.

1. Risk Potential
2. Merchant Credit Standing
3. The Industry
4. Is the card present when the transaction is taking place
5. Is it online or retail

In general, a retail store is charged a lower rate because it’s less risky. Fraud decreases when the credit card is physically used for the transaction.

There are 3 main fee categories:

1. Qualified Rate:

This is the lowest rate a merchant can receive. This occurs when the consumer physically swipes the car at the terminal.

2. Mid-Qualified:

This is the middle rate for merchants that don’t quality for the lowest rate. An example of this would be when there’s a keyed transaction or MOTO/internet merchant

3. Non-Qualified:

This is the non-qualified rate and the most expensive. This rate comes into play when there’s foreign cards and paper-based transactions.

 

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