{"id":9383,"date":"2023-12-21T04:51:42","date_gmt":"2023-12-21T09:51:42","guid":{"rendered":"https:\/\/faisalkhan.com\/?page_id=9383"},"modified":"2023-12-21T04:51:44","modified_gmt":"2023-12-21T09:51:44","slug":"interchange-and-how-it-works","status":"publish","type":"page","link":"https:\/\/faisalkhan.com\/learn\/payments-wiki\/interchange-and-how-it-works\/","title":{"rendered":"Interchange and how it works"},"content":{"rendered":"\n
Interchange, in the context of banking, payments, card processing, and cards, refers to the fee typically paid by a merchant’s bank (acquirer) to a customer’s bank (issuer) for card-based transactions. This fee is a key component in the financial operations of credit and debit card networks.<\/p>\n\n\n\n
The interchange fee is a transaction fee set by card networks (like Visa, MasterCard) that the merchant’s bank pays to the cardholder’s bank whenever a customer uses a card for a purchase. The fee compensates the issuer for the risk and cost involved in handling card payments, including fraud prevention and providing credit.<\/p>\n\n\n\n
Interchange fees are set by card networks (e.g., Visa, MasterCard) and vary based on the type of card (debit, credit, rewards), the transaction type, and the merchant’s industry.<\/p>\n\n\n\n
Interchange fees are crucial for the functioning of the card payment ecosystem. They incentivize banks to issue cards and participate in the network. The primary beneficiaries are the card-issuing banks, as they receive the interchange fee income.<\/p>\n\n\n\n
Interchange is an expense for the merchant and their bank, as they pay the fee. It’s an income for the card-issuing bank.<\/p>\n\n\n\n
Program managers or card promoters can benefit from interchange by:<\/p>\n\n\n\n
Let’s go through a calculation for an interchange transaction. I’ll use a hypothetical scenario with a credit card transaction at a retail store to illustrate how the interchange fee is calculated and distributed.<\/p>\n\n\n\n
This example simplifies the process for clarity. In real-world scenarios, additional fees like assessment fees by the card network and processing fees by the merchant’s bank might also apply.<\/p>\n\n\n\n
Interchange fees are a fundamental aspect of the card payment system, balancing the interests of various parties involved. Understanding these dynamics is crucial for anyone dealing with card-based transactions, be it from a merchant, bank, or consumer perspective.<\/p>\n","protected":false},"excerpt":{"rendered":"
Interchange, in the context of banking, payments, card processing, and cards, refers to the fee typically paid by a merchant’s bank (acquirer) to a customer’s bank (issuer) for card-based transactions. This fee is a key component in the financial operations of credit and debit card networks. Official Definition and How It Works The interchange fee […]<\/p>\n","protected":false},"author":1,"featured_media":0,"parent":3611,"menu_order":0,"comment_status":"closed","ping_status":"closed","template":"","meta":{"_uag_custom_page_level_css":"","_lmt_disableupdate":"","_lmt_disable":"","footnotes":""},"blocksy_meta":[],"featured_image_urls":{"full":"","thumbnail":"","medium":"","medium_large":"","large":"","1536x1536":"","2048x2048":"","gb-block-post-grid-landscape":"","gb-block-post-grid-square":"","yarpp-thumbnail":""},"post_excerpt_stackable":"
Interchange, in the context of banking, payments, card processing, and cards, refers to the fee typically paid by a merchant’s bank (acquirer) to a customer’s bank (issuer) for card-based transactions. This fee is a key component in the financial operations of credit and debit card networks. Official Definition and How It Works The interchange fee is a transaction fee set by card networks (like Visa, MasterCard) that the merchant’s bank pays to the cardholder’s bank whenever a customer uses a card for a purchase. The fee compensates the issuer for the risk and cost involved in handling card payments, including…<\/p>\n","category_list":"","author_info":{"name":"Faisal Khan","url":"https:\/\/faisalkhan.com\/author\/nomismad\/"},"comments_num":"0 comments","featured_image_urls_v2":{"full":"","thumbnail":"","medium":"","medium_large":"","large":"","1536x1536":"","2048x2048":"","gb-block-post-grid-landscape":"","gb-block-post-grid-square":"","yarpp-thumbnail":""},"post_excerpt_stackable_v2":"
Interchange, in the context of banking, payments, card processing, and cards, refers to the fee typically paid by a merchant’s bank (acquirer) to a customer’s bank (issuer) for card-based transactions. This fee is a key component in the financial operations of credit and debit card networks. Official Definition and How It Works The interchange fee is a transaction fee set by card networks (like Visa, MasterCard) that the merchant’s bank pays to the cardholder’s bank whenever a customer uses a card for a purchase. The fee compensates the issuer for the risk and cost involved in handling card payments, including…<\/p>\n","category_list_v2":"","author_info_v2":{"name":"Faisal Khan","url":"https:\/\/faisalkhan.com\/author\/nomismad\/"},"comments_num_v2":"0 comments","yoast_head":"\n