What are Interchange Fees?

What are interchange fees? This is a commonly asked question especially those new to opening up their own business. Learning the answer to, what are interchange fees, can help you understand exactly what you will be expected to pay for merchant account services as the merchant.

When you are looking into opening up your own business, it is important to fully understand how merchant account services work and learn how to answer, what are interchange fees? This is especially important because while there are many fees involved with a merchant account services company when you are running your own business, interchange fees are one of the most important types of fees to keep in mind. Consumers do not realize they actually pay a fee whenever they swipe their debit or credit card for any purchase. However, those interchange fees are usually included in with some other banking fees. Merchant account service providers also pay for these per-transaction fees. These fees are paid to the merchant account service providers that make it possible for businesses to accept credit and debit cards in the first place.

What Are Interchange Fees?

When merchants accept credit cards as payment for transactions, credit card also incur per-transaction fees. This means that the merchant must pay the merchant account service provider for these costs. The interchange fee essentially is to cover the interchange process between the acquiring bank (where the merchant account is) and the issuing bank (the bank that issued the credit/debit card).

How Interchange Fees Work:

In a credit or debit card transaction, the card from the customer’s bank deducts the interchange fee from the amount the acquiring fee gets that handles the debit or credit card transaction for a merchant. From here, the acquiring bank is then responsible to pay the merchant the amount of the transaction, but minus the interchange fee. They also might charge an additional smaller fee for the acquiring bank. There are also interchange fees that occur when an ATM is used for a cash withdrawal.

The Problem With Interchange Fees:

Unfortunately in recent years interchange fees have taken a significant change for the extreme among many major banks. In fact, the banks were charging smaller merchants and businesses so much per transaction, the interchange fees were causing merchants to have to drive up the costs of their products and services in order to see an increase in their profit margin. This is bad business for both the merchant as well as the consumer. Fortunately the Durbin Amendment as well as the Financial Reform and Consumer Protection Act, are currently enacted putting a cap on the amount of interchange fees banks can charge for the per-transaction interchange fees. This is a savings for both the merchant account service providers as well as the merchants themselves. However, because banks are losing money, new bank fees like debit card fees are coming into place. Overall however, the Financial Reform and Consumer Protection Act seems to be an overall win for interchange fees for the merchants as well as the consumers that benefit from the savings experienced by the merchants and businesses.

Banks are beginning to try and reap the losses instituted by the Durbin Amendment cap by charging these extra fees. Interchange fees provide the most money toward banks in terms of fees. Now, many large banks are claiming millions of dollars in losses as a result of this interchange fee cap. Now, if you are a merchant looking for the best merchant account services, take this time to really research which companies are adhering to the new interchange fee standard changed by the Durbin Amendment at the beginning of October 2011. If your merchant account service provider is not changing their rates based on these legal changes, it is important to make sure they do so or to get a new merchant account service provider.

Taking advantage of the savings set forth with interchange fees is the best way to save money on your overall service costs for your business. Check out the best merchant account services with the lowest prices to find out exactly how much money you can save on your overall business operation costs.

Sources: wikipedia.org, time.com