Interchange fees are the costs you pay to your payment processor each time a customer makes a purchase using a credit or debit card. These fees – sometimes referred to as swipe fees – are set by credit card companies, and average about 2% of the transaction amount plus up to a 30 cent flat fee per transaction.
Interchange fees can impact the overall cost of operating your business, especially in the retail sector – e-commerce, or brick and mortar. Here’s everything you need to understand about interchange fees for processing credit cards; we’ll also review typical swipe fee costs and how to lower your payments.
Editor’s note: Looking for the right credit card processor for your business? Fill out the below questionnaire to have our vendor partners contact you about your needs.
When you sign up with a payment processing company, it typically lists its interchange fees. Starting fees are usually expressed as a percentage of a transaction amount – including taxes – plus a flat rate.
While processing companies often include starting rates for different card issuers, interchange fees vary between companies and are usually set using a series of formulas.
For example, a processor may charge a certain starting rate for cards issued by Discover vs. Capital One. They may also raise costs based on how many transactions you plan to process in a month, the average size of your transactions, whether you’ll be accepting credit cards in person or over the phone, and the industry in which you operate.
Once you agree to the interchange fees and start processing payments, the processor will deduct interchange fees automatically from all the payments you process and then transfer the resulting balance to your business bank account.
There are legal limits to how much payment processors can charge in interchange fees. These limits were instituted by the Durbin Amendment to the Dodd-Frank Wall Street Reform and Consumer Protection Act.
On average, interchange fees for credit card purchases are around 1.81% of the transaction value. Rates for debit cards are lower – around 0.3%. That said, interchange fees vary based on card issuer, transaction type and your industry. If processors consider your industry high risk – with a high likelihood of fraudulent transactions or chargebacks – then your fees could be markedly higher.
These transactional factors impact interchange fees:
Your company’s services provider, also called a payment processor, charges interchange fees. In some cases, this may be a bank or a credit union. Most often, it’s a credit card processing company, such as Stripe, PayPal, or Square (read our Square review).
Processors charge these fees for verifying a customer’s funds, processing the transaction and protecting your business against loss from fraud.
If your organization accepts credit or debit card payments, you must pay interchange fees. Even government agencies pay these fees, including churches and charities. However, these organizations can often negotiate lower credit card processing fees.
Every time you process a credit card transaction through the processor, the processing company collects a small fee from that transaction. The fees are deducted automatically from your merchant account before the net sales proceeds are sent to your company’s bank account.
Some transactions may incur higher transaction fees if they fail to meet the criteria to qualify for lower rates. Follow these tips to reduce or eliminate interchange fees:
If you really want to avoid interchange fees, there’s only one way to do it: Don’t accept credit or debit cards. Depending on your industry, not accepting credit cards can hurt your bottom line even more than the fees.
Interchange fees may be a fact of life for your small business – especially if you sell goods and services to the public, which expects the option of paying by plastic.