Stopping Power Pricing

Interchange is a term used in the payment card industry to describe a fee paid between banks for the acceptance of card-based transactions. Usually for sales/services transactions it is a fee that a merchant’s bank (acquiring bank) pays a customer’s bank (issuing bank).

In a credit card or debit card transaction, the card-issuing bank in a payment transaction deducts the interchange fee from the amount it pays the acquiring bank that handles a credit or debit card transaction for a merchant. The acquiring bank then pays the merchant the amount of the transaction minus both the interchange fee and an additional, usually smaller, fee for the acquiring bank or independent sales organization (ISO), which is often referred to as a discount rate, an add-on rate, or pass-thru. These fees are set by the card-issuing banks credit card networks, and are the largest component of the various fees that merchants pay for the ability to clear card payments through the ACH.

Interchange fees have a complex pricing structure, which is based on the issuing-bank, card-brand, regions, jurisdictions, type of card, type & size of the accepting merchant, & the type of transaction (e.g. online, in-store, phone order, whether the card is present for the transaction, etc.).