As you may know, an interchange rate is the fee that a card-issuing bank charges a merchant's bank for processing a credit or debit card transaction. This fee is generally passed on to the merchant in the form of a higher merchant discount rate (MDR).
In order to ensure that all cardholders are treated fairly, the card networks (Visa, Mastercard, etc.) have established a set of interchange rates that all banks must follow. While these rates are generally the same across the board, there are a few small differences that can affect your business.
In this guide, we'll take a closer look at interchange rates and how they work. We'll also discuss how to get the best possible rates for your business.
How Interchange Rates Work
Each time a customer makes a purchase with a credit or debit card, the merchant's bank must pay an interchange fee to the card-issuing bank.
The MDR is the total cost of accepting a credit or debit card payment, and it typically ranges from 1-3% of the transaction. The interchange fee is the largest component of the MDR, and it can vary depending on the type of card used, the type of transaction, and the size of the purchase.
While interchange rates are set by the card networks (Visa, Mastercard, etc.), they are generally the same across all banks. However, there are a few small differences that can affect your business.
For example, Visa has two interchange rate tiers: qualified and non-qualified. Qualified rates apply to transactions that meet certain criteria, such as being made with a Visa credit card and processed through a Visa point-of-sale terminal. Non-qualified rates apply to all other transactions.
Additionally, Mastercard has three interchange rate tiers: standard, enhanced, and premium. Standard rates apply to most credit and debit card transactions, while enhanced rates apply to certain types of cards, such as business or rewards cards. Premium rates apply to transactions that are considered high risk, such as those that are made online or over the phone.
The card networks also offer discounts on interchange rates for certain types of businesses, such as charities and government organizations. These discounts can vary depending on the type of business and the type of card used.
Finally, some banks may charge additional fees on top of the interchange rate. These fees are typically passed on to the merchant in the form of a higher MDR.
How to Get the Best Interchange Rates
There are a few things you can do to ensure that you're getting the best possible interchange rates for your business.
First, make sure you're using a qualified terminal to process credit card transactions. Visa and Mastercard offer the best interchange rates for transactions that are processed through their respective point-of-sale terminals.
If you're not using a qualified terminal, you may be able to get a lower interchange rate by signing up for a merchant account with a bank that offers special rates for non-qualified transactions.
