It’s frustrating for businesses to deal with interchange fees. These charges the companies spend for processing credit card payments can be frustrating. They keep a business from bringing in more money, plus they keep the cash flow in check.
These interchange fees will also change a few times each year. The credit card networks traditionally release updates to their interchange fees and other terms of operation in April and October of each year.
Visa and MasterCard will post direct announcements when they change their interchange rates. Discover is not as open about these announcements, as that brand focuses on more specific rates for each business that signs up for services. American Express is also quiet about their interchange rates and how they change them, but Amex typically charges higher rates than what other networks will provide.
Who Determines How Much These Fees Are Worth?
The credit card brands will determine the values of these interchange fees. Visa, MasterCard, and all the others will figure out what they will charge for each industry, each card being offered, and other factors.
The brands can also produce interchange rates based on the MCC of each business. The Merchant Category Code or MCC will entail a specific field a business serves. Some MCCs may feature higher rates due to their added risks.
Businesses cannot negotiate lower fees with these networks. They must play by whatever rules the networks impose when establishing credit card terms. But businesses can reduce the amounts they spend by using more protective measures when handling transactions. Companies that provide more info on each purchase may utilize lower interchange fees, for example.
Common Reasons Why Interchange Fees Change
Businesses are often frustrated with how the interchange fees they pay constantly keep rising in value. These networks have many reasons why they keep on increasing their interchange fees:
- They may be subject to regulations over how much they can charge.
Some networks might need to control their interchange fees based on the industries they serve or the types of cards they accept. The Durbin Amendment in the Dodd-Frank Law states that card issuers have limits on how much they can charge in interchange fees for debit card transactions, for example. But the Durbin Amendment doesn’t have such a rule for interchange fees for credit cards.
The most substantial worry for businesses is that some retailers may adapt their charges by imposing higher rates on certain purchases. For example, the Durbin Amendment prompted card networks to raise their interchange rates for small-value transactions. They are doing this because they know they can get more money from those deals. Since they are losing money by bearing lower debit card rates, they are raising their credit card rates to offset those impacts.
- The networks want to ensure the merchants that accept their cards are responsible.
Many card companies have introduced new reviews to ensure ghost authorizations that do not settle in enough time will be minimal. Some networks are putting in extra efforts to verify accounts and confirm the integrity of each transaction. The added analysis prompts the companies to charge extra interchange fees.
- Some networks are also constantly introducing new products.
Some networks will change their rates to cover some of the unique products they offer. These include cards that provide special reward offers. Some networks also have added fraud protection services and other security measures available to cardholders. Some new efforts to protect the consumers will prompt these card companies to charge extra for their services.
Can These Rates Change Based on the Merchant Processor’s Rates?
A merchant service provider can offer a tiered or interchange-plus pricing format. The rates the processor offers are independent of what the networks charge. A business will be subject to the same interchange fees regardless of the rates or charging method the MSP uses.
Merchant service providers allow businesses to negotiate better merchant fees. They can negotiate better fees based on their performance and credit ratings. But they cannot do the same with interchange fees, as the networks will still follow the same rules for charging businesses for their work.
Could a Network Lower Its Rates?
Most interchange rate changes entail these rates increasing in value. Businesses continue to complain and protect new hikes in their rates, especially as these rates keep the profit margins for some retailers in check.
There’s always a chance an interchange rate might drop after a while. A rate may drop because a network wants to get its cards out in more markets. These include B2B and charitable markets, among others. Some networks will offer lower rates in these markets to make them more appealing in these fields.
While the rates might decrease in some spots, they may increase in others. These changes give retailers a chance to make more money.
Will Debit Rates Change?
While the Durbin Amendment has imposed limits on how much credit card companies can charge for debit transactions, it is still tough to figure out if debit rates can change. Retailers will pay less in debit fees.
Debit rates aren’t as likely to change, as they link to different networks. The United States features many debit networks like Interac, Maestro, NYCE, Star, and Pulse. Each network has unique rates for its debit cards. The major credit card networks will work alongside these debit networks to handle these transactions.
The same is also true in Canada. The Interac system manages network fees throughout Canada, with each transaction costing the merchant a few cents. The card networks will work alongside the Interac system to handle whatever rates work here. The debit rates are still treated differently here.
A Final Note
Any business that wants to accept credit cards must note the interchange rates it will spend on each transaction. These rates will change a few times a year for various reasons. Sometimes the rates can decrease in value, but there’s no guarantee they will get there.