Frequently Asked Questions
What is interchange?
Interchange is the fee that Visa and MasterCard charge. This is where there are a lot of hidden fees within the industry—there are more than 300 interchange levels within Visa and MasterCard. There are rates for personal credit cards, reward credit cards, corporate credit cards, international credit cards, and debit credit cards. All of these have a fee associated with them.
So, for example, let’s say there is a swiped transaction, a face-to-face transaction between a lawyer and a client. Maybe the rate is 1 percent, but there is very low risk. The lawyer is swiping the card in person. However, if they get the card number over the phone then there’s more risk involved and the odds of fraud are higher. For this reason, Visa and MasterCard put a higher rate and a higher interchange.. So, maybe instead of 1% it increases to 3%. That interchange rate is universal across all credit card companies. It’s the other fees that the processors put on top of that such as transaction fees and monthly fees and compliance fees that create the whole effective rate.
And what’s very important to understand is that many companies will take the lowest interchange rate. So let’s say it’s 1.2% which sounds so low. They’ll say, “Hi so-and-so, our rate is 1.2% and the truth is, they’re right. There is a rate that is 1.2%. If you get this particular credit card, you’ll be charged 1.2%, but it may be that out of a 1,000 transactions only one credit card hits that very low level. So, that’s why it’s so important that your credit card company shares with you an interchange summary and really breaks down for you every transaction. If you are considering switching processing partners or starting up, they should show you exactly what every fee should hit at.