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How To Manage the Cost of Payments When Interchange Rates Increase

How To Manage the Cost of Payments When Interchange Rates Increase
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The four card brands—American Express, Discover, Mastercard and Visa—assess Interchange fees on card payments to compensate the card-issuing banks for processing transactions. Fees are typically reviewed and adjusted once or twice a year, in April and October. In 2020, due to the COVID-19 pandemic, the card brands suspended most practices so as not to further burden businesses hit with closures, labor, supply chain issues and other challenges. 

In April 2022, the card brands updated their rate tables, resulting in an increase in transactions across most Interchange categories. Businesses accepting payments will likely see changes reflected on their May merchant processing statements, dependent on the Terms and Conditions set forth by their payment provider.

Let’s revisit the topic of Interchange fees and explore actions you can take to offset increasing costs, as well as identify any deceptive pricing and billing practices your payment provider may employ, masked under a broad category of fee increases.

What are Interchange Fees?

An Interchange fee is afee charged by card associations and banks to businesses that process credit card and debit card payments. The fee covers the costs associated with accepting, processing and authorizing card transactions.

Interchange rates set by the card brands make up the bulk, approximately 65%, of the cost of every transaction. In all, there are more than 300 Interchange categories in the U.S. and the rates vary based on cost and risk factors including:

  • The type of card that is used: card brand, credit, debit, rewards card, purchasing card
  • Where the transaction occurs: in-person, online, at a kiosk, via phone/mail
  • How the card data is captured: inserted/swiped, key entered, stored on file
  • What industry the business is in: retail, restaurant, mail order, grocery, travel

An additional 10% of the costs are the result of assessments from the card brands such as:

  • Brand usage fees
  • Network access fees
  • Cross-border charges
  • High-ticked transaction fees

When combined, Interchange and assessments contribute about 75% of the rates and fees paid by an organization. Which leaves a small percentage for the mark-up for processors and acquirers that allows them to provide businesses with payment processing, funding and support.

What is the Most Transparent Pricing Program?

Payment providers offer a mix of pricing programs aligned with their business practices and customer profiles. The most common are flat-rate pricing, tiered (or bundled) pricing, and Interchange Plus. For very small merchants, the simplicity of paying one rate may work; however, for businesses that have higher average tickets, run multiple locations or take omnichannel payments, Interchange-plus pricing is the most transparent and cost effective.

Interchange-plus pricing plans provide clearly outlined fees and terms based on the card brands’ published Interchange rates. Providers add a markup to operate their business and maintain their data and operations centers. The markup helps keep their solutions current with industry trends, deliver best-in-class integrated solutions, fund your bank account, deliver reports and statements, and provide customer support.

Six Ways to Offset Interchange Rate Increases

Like taxes, Interchange rate increases are inevitable. The good news is that your business can take measures to blunt the impact of rate hikes. Plus, many of the steps you take to lower interchange prices carry less risk and therefore help reduce the risks of credit card fraud and resulting chargebacks.

  1. Connect a Smart Terminal for In-Person Payments

    Capturing card data in person via the dip or tap of a card, phone or wearable carries the least risk and, therefore, the lowest fees. If you are keying information directly into software or a Virtual Terminal when the customer is present, you are paying more on every transaction.

  2. iImplement Online Ordering with Pay in Person

    The COVID-19 pandemic shifted many business processes to digital interactions, including in-store pickup and curbside servicing. While this was important for safety reasons, it shifted payment transactions from low in-person rates to higher online rates. Keep the convenience of these business models and allow customers to order ahead, but take the payments when they arrive in-person to qualify for the best card-present rates. You can use a ZeroTouch Terminal at the counter, or a Portable Terminal outside.

  3. Require Address Verification for Card-not-Present Transactions

    With AVS credit card match, the customer’s address and ZIP code are captured and quickly verified against the billing address associated with their credit card. This lowers risk, and therefore qualifies for lower Interchange rates.

  4. Capture Level 3 Processing Data for B2B Transactions

    If you conduct business with companies or government agencies (B2G) that buy goods or services using corporate cards, purchasing cards or business cards, you can significantly lower Interchange fees by sending line-item details on eligible transactions.

  5. Encourage the Use of Low-cost Payment Methods

    ACH and debit cards typically cost less than credit cards. You can use them for one-time or recurring payments made in person, online or via invoices.

  6. Transfer Processing Costs to Customers

    Offset the cost of acceptance (1% - 4%) by implementing Credit Card Surcharge for customers who choose to make payments with a credit card. The fee can be avoided by switching to another payment method, such as cash or debit. Surcharge works best for businesses with lower average tickets, where customers don’t mind paying for the convenience of using their card. The card brands require businesses to provide notice and follow rules, so it’s best to work with your payment provider to ensure compliance.

Are you being billed fairly by your Merchant Service Provider?

A dishonest provider can be hard to spot. Download PayJunction's 30-Point Merchant Service Provider Billing Checklist to see if your business is a victim of unfair billing.

Do you have still have questions about Interchange? Post it below in the comments sections!


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PayJunction Team

Content written by the PayJunction team encompasses broad business topics including marketing, brick-and-mortar business operations and management.

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