What is Interchange?Ever wonder what all those fees are for that are being deducted on yourmerchant statement? Or why they will vary from month to month? There arethree entities that will typically be paid fees on a merchant statement.• Interchange Fees – Paid to the Credit Card Issuers for all the cardsprocessed that month by that merchant• Association Fees – Paid to Visa, MasterCard, Discover, etc for the variouscards processed that month by that merchant• Discount Fees - Paid to the Processor for the ability to process all thecredit cards.The amounts will vary depending on what cards are processed and the variousamounts transacted. When a merchant processes a credit card, a portion ofthat transaction is withheld by their credit card processor to be paid to thecorresponding parties mentioned above. Depending on your processor,sometimes those fees are collected daily or sometimes they are collected at theend of the month in one lump sum. As NEXTEP PROCESSING is anInterchange Plus merchant services provider we collect the various feesrequired at the end of the month in one lump sum.The majority of fees collected do not go to the processor. In fact, most of thefees paid are Interchange. Interchange rates are non-negotiable and allmerchants pay the same rates regardless of their size or sales volumes.Interchange rates are public information and posted on the internet on Visa andMasterCards websites. Although the Interchange rates are subject to changeat anytime, they typically only update these rates twice a year (April & October).Interchange is comprised of hundreds of categories but there are three mainfactors that will comprise what category a transaction will fall into.• The Merchants Industry• They type card processed◦ Rewards Based, Non Rewards• How the card was processed◦ Swiped, Keyed-In, Present, Not Present
What are Assessment Fees?The card assessment fees are fees paid to Visa, MasterCard and Discover.They are also public information and non negotiable. The most common feesare as follows:Visa:• Acquirer Processing Fee (APF) or Usage Fee - The Acquirer ProcessingFee applies to all U.S. based credit card authorizations acquired in the U.S.regardless of where the issuer/cardholder is located.◦ $0.01950 per transaction (Credit Cards)◦ $0.01550 per transaction (Debit Cards)• Visa Assessment Fee – The assessment fee applies to gross Visatransaction volume.◦ 11 basis points per transaction (.11%)• Settlement Network Access Fee (aka Visa Base II Fee) - Applies to all U.S.-based settlement transactions. If your business is based in the U.S., thesettlement network access fee will apply to all Visa settlement transactions.◦ $0.0023 per transactionNote: The Settlement Network Access Fee (Visa Base II Fee) and Acquirer ProcessingFee will both apply to the vast majority of credit card transactions for U.S. basedbusinesses bringing the total fee to $0.022 per transaction.Additional fees are detailed in our Card Association analysis. These additional feescan be assessed by Visa depending on the circumstances of the transaction. Thefees above are universal and are typically found on every Visa transaction processedby a merchant.MasterCard• Network Access and Brand Usage Fee (NABU) - The Acquirer ProcessingFee applies to all U.S.-based credit card authorizations acquired in the U.S.regardless of where the issuer/cardholder is located.◦ $0.01850 per transaction (until 6/30/13)◦ $0.01950 per transaction (after 6/30/13)• MasterCard Assessment Fee - The assessment applies to grossMasterCard transaction volume.◦ 11 basis points per transaction (0.11%) - For transactions less than$1,000.◦ 13 basis points per transaction (0.13%) - For transactions greater than$1,000. (Also called MCs Acquirer Brand Volume Fee)
Note: Effective January 15, 2012 MasterCards Acquirer Brand Volume Fee increasedfrom 0.12% to 0.13%. This assessment applies to consumer and business creditvolume on transactions of $1,000 or greater. This assessment does not apply tosignature debit transactions regardless of size.Additional fees are detailed in our Card Association analysis. These additional feescan be assessed by MasterCard depending on the circumstances of the transaction.The fees above are universal and are typically found on every MasterCard transactionprocessed by a merchant.Discover• Data Usage Fee – This fee applies to all U.S based authorizedtransactions.◦ $0.01850 per transaction• Discover Assessment Fee – This assessment fee applies to grossDiscover card transaction volume.◦ 10.5 basis points per transaction (0.105%)• Data Transmission Fee – A fee that applies to all sale transactions.◦ $0.0025 per transactionAdditional fees are detailed in our Card Association analysis. These additional feescan be assessed by Discover depending on the circumstances of the transaction.The fees above are universal and are typically found on every Discover transactionprocessed by a merchant.So on a $100 transaction (Visa), what would the Merchant pay in interchangeand Visa assessment/usage fees? Lets assume the Interchange fees payableto the card issuer were 1.89% + $0.10.Fees paid to the card issuer: $100 x 0.0189 = $1.89 + $0.10 = $1.99Fees paid to Visa: $100 x 0.0011 = $0.11 + $0.01950 + $0.0023 = $0.13Total Fees (Interchange & Association): $2.1218Why is Interchange Important?It is important to understand Interchange as it is the biggest component of aMerchants fee structure in processing credit cards. It is also important tounderstand that those fees are non negotiable and every merchant pays thesame amount. Its a myth that Merchants can negotiate their interchange fees.Despite this, there are processors out there that will use deceptive marketing
tactics to trick merchants into thinking otherwise. The only fees that arenegotiable are the fees paid to the processor. The most affordable pricingmodel for any merchant is Interchange Plus pricing.Please see our article about the differences between Bucket/Tiered andInterchange Plus pricing for more Information.Myths about InterchangeInterchange is a tax paid by consumers.• Interchange is not a tax and it is not paid by consumers. Interchange ispaid by the merchant and is part of the monthly fees they are assessed forprocessing credit cards.Visa, MasterCard and Discover are paid Billions of dollars in Interchangeevery year.• Interchange is not paid to the card associations. Interchange is paid to thebanks that issued the credit cards processed. The card associations arepaid different fees that are much lower than interchange.Interchange rates have risen dramatically in recent years.• Interchange rates have only risen 1.90% since 1990, which is well belowthe rate of inflation. The revenue received by banks from Interchange hasincreased due to the increase in merchants accepting credit cards andless consumers writing checks to pay for goods and services.Interchange rates are a secret and not disclosed.• Interchange rates are public information and posted on the internet. Manymerchants think this information isnt available due to prevalence ofBucket/Tier model statements which typically dont disclose whatinterchange was for the cards processed that month. This can berectified by having your processor move you to a Interchange Plus pricingmodel which discloses all this information monthly.Interchange is negotiable.• Interchange is not negotiable. Its set by the issuing banks (of the creditcards) and the price is what it is.Large merchants will get a discount on the Interchange fees.• All merchants regardless of size pay the same interchange rates for therespective cards processed.