What are Interchange Fees & How can Merchants Fight Back Against Them?
All merchants who accept credit and debit cards should be familiar with interchange fees, and that’s because interchange fees are a costly expense that significantly reduces a merchant’s bottom line. Interchange fees in the US are higher than anywhere else in the world, and last year Visa and Mastercard quietly yet significantly increased their interchange fee rates, a change that’s expected to yield them an additional $1.17 billion per year.
Interchange fee rate increases may be good for the large payment processing companies, but they greatly effect merchants and sometimes make a would-be profitable merchant unprofitable. However, there are things a merchant can do to get out from under the boot heel of interchange fees.
What Are Interchange Fees?
When a merchant makes a sale and the customer pays using a debit or credit card, the merchant will pay what’s known as an interchange fee. This fee is charged by the bank who issued the customer their credit card, and it’s in place to cover handling costs, fraud and bad debt costs, and other risks that are associated with approving a payment. But the card-issuing bank isn’t the only entity that charges an interchange fee. Below are all the entities that will charge an interchange fee when a transaction is made:
- Card-issuing banks
- Payment processors
- Credit card payment networks like Mastercard and Visa
- Payment gateways
- The merchant’s bank
While interchange fees are often referred to as a singular fee, they are in fact made up of 300 individual fees. Interchange fees are not static or regulated, meaning that they can increase at any time the card brands deem it necessary, as they’re influenced by current interest rates and other factors. It’s been found that 70% to 90% of fees paid by merchants to banks are interchange fees. In the US, the average interchange fee is 2% of a transaction amount at present.
Why Have Interchange Fees Increased Over This?
Over time, interchange fee rates have gone up steadily, mirroring the steady increase in global card adoption that has taken place over the same period. Since more people are swiping cards now, payment processors have a lot more risk to account for, and such in part explains the interchange fee rate increases.
Say, for example, Visa was approving more payments and they weren’t charging an interchange fee rate which reflected the risk increase associated with increased volume. Eventually, they would start to lose money because of bad transactions, as there wouldn’t be enough raised from successful transactions to offset the bad ones.
With that said, there’s still a lot of debate regarding how high interchange fees should be. And while some legislative bodies around the world have pleaded with Visa and Mastercard to consider lowering their fees, others are exploring regulatory action.
How Does Partnering with Swipe4Free Eliminate Interchange Fees?
While interchange fees cannot be avoided completely—unless you run a cash-only business—there are things a merchant can do to offset the high cost of them. For example, merchants can partner with Swipe4Free and pass on their credit card and debit card processing fees for each transaction made to their customers. A small non-cash charge, typically 4% of the transaction, is charged to each customer that uses a debit or credit card in a merchant’s business allowing the merchant to keep 100% of the profit of each transaction made. This method is completely legal within the U.S., and has kept so much money in the accounts of merchants who need it most. The world is still reeling from COVID-19 and all its effects, and the last thing merchants need in this time of recovery are interchange fees that put them out of business.
Swipe4Free is the nation’s number one cash discount and surcharging platform. Founded by Leo Vartanov and Chris Benabu in 2015, Swipe4Free allows merchants to pass their credit card processing fees along to the customer by implementing a 4% non-cash charge to all customers who pay with credit cards. The non-cash charge is legal within all 50 states and is automatically waived when customers pay with cash or a gift card. The customers are made aware of the non-cash charge with signage and stickers that we provide for your place of business. You can place the signage on the door of the business as well as on/near the register where customers pay. We also provide language for online businesses to make customers aware of the non-cash charge. This 4% non-cash charge eliminates all your credit card processing fees, allowing you to keep 100% of the profits per transaction made with credit cards. Swipe4Free uses the 4% non-cash charge to cover interchange costs, authorization costs, transaction costs, and support for our merchants.