Interchange in Plain English

This video gives a 101 on interchange – in plain English.

So what is interchange, and why does it exist?

When a merchant accepts a card for payment, they pay a “merchant discount fee,” which is typically 2 – 2.5% of the transaction amount. “Interchange” is the portion of this fee that is received by the bank or credit union that issued the customer’s card. This now averages 1.65% for all cards.

Merchants pay this in order to access the global electronic payments network, along with the opportunities for increased revenue and guaranteed payment it provides.

Interchange revenue is critical to running a card program, partially reimbursing card issuers for the float on the funds, the risk of nonpayment or fraud, and other activities associated with running a card program. Without this interchange revenue, customers would have to shoulder the burden for this global system.

Merchants receive value well in excess of the cost of accepting cards. But they don’t want to pay for this service, and think customers should foot the bill instead. That’s simply not fair.