An interchange fee is the payment of a specified amount of money that is paid between banking bodies for accepting card based payment transactions. Interchange fees are fees that the merchant has to pay in order to process card transactions made to them by their customers and are usually paid from the merchant’s bank to the issuing bank.
How interchange fees occur
An interchange fee is a certain amount of money that merchants are required to pay in order to successfully transact payments from their customer’s accounts. This fee is only levied in the event that a customer uses a credit or debit card for payment.
Credit and Debit cards are one of the most popular methods of making online payments. Therefore it is important that payment service providers are aware of the mechanism involved in accepting these payments, especially in regards to various fees levied onto their acquiring bank account.
Once a credit or debit card transaction is initiated, the cardholder’s bank (issuing bank) deducts a certain set amount of interchange fees from the acquiring bank where the merchant has their merchant account. After this payment is completed, the acquiring bank transfers the funds into the merchant’s account which is an amount minus the interchange fees. The fee is deducted by the acquiring bank on the basis of accepting a payment on behalf of the merchant.
Interchange fee are usually set by the credit card networks and offers merchants the exclusivity to accept card payments to their acquiring banks.