The Relationship Between Interchange Fees and Credit Card Processing

The Relationship Between Interchange Fees and Credit Card Processing

Merchants who accept credit cards as one of their payment options must pay an interchange fee for every transaction. This fee is an integral part of credit card processing, and a necessary expense for every business holding a merchant account. The merchant is responsible for paying this fee, since accepting credit cards is not exactly a requirement. The fee covers the maintenance and security costs associated with keeping this system in place.

The relationship between credit card processing and interchange fees is an interesting one to say the least. On one hand, most merchants understand the importance of accepting credit cards. They know offering this convenient payment method will attract customers, increase sales, and decrease their liabilities. In contrast, since most business owners work hard to increase profits and cut expenses, having a mandatory fee on almost every transaction will raise concerns. Merchant account holders are aware of the fact that interchange fees will keep the system running properly. Nevertheless, it is extremely difficult to keep this fact in mind while continuously paying this fee.

The percentage deducted from each transaction is usually less than three percent. This number may seem minuscule, but after running a number of transactions through a number of merchant accounts, this can add up to a significant amount of money. So who receives the money coming from credit card transactions? Well, just over 75% of the fee goes to the cardholder’s bank. The remainder of the fee goes to the merchant’s bank for acquiring the transaction. In turn, these banks are responsible for handling any problems that may occur during a transaction such as fraud, identity theft, equipment failure, and processing errors.

Since credit card processing happens so swiftly, most individuals may believe it is an inexpensive, low-maintenance system. On the contrary, it just appears this way because it is a solid mechanism that took years to construct. As with any system, it requires regular maintenance and monitoring. The interchange fee, regardless of how taxing it seems, pays for this upkeep so the public can have a convenient payment option in the marketplace. So while the financial burden may seem as if it is unfairly placed on the merchant, this system also encourages consumers to spend, which is a plus for the merchants as well.