Interchange Fee KPI

Interchange Fee

The Interchange Fee KPI tracks the fees an acquiring bank pays to the card issuing bank for each credit or debit card transaction, which are then passed on to merchants as part of card processing costs. Set by card schemes like Visa and Mastercard, these non-negotiable fees are typically calculated as a percentage of the transaction amount (e.g., 0.3-0.4% in Europe, 2% in the US) plus a fixed fee, updated biannually in April and October. For example, a $100 transaction with a 1.5% interchange rate and $0.10 fixed fee costs $1.60. Rates vary based on card type (credit, debit, rewards, commercial), transaction type (card-present vs. card-not-present), merchant category (e.g., lower rates for charities), and region, with domestic transactions often cheaper than cross-border ones due to lower fraud risk.

This KPI is critical for merchants as interchange fees form the largest portion of card processing costs, significantly impacting profitability. High fees, especially for card-not-present or rewards card transactions, can erode margins, prompting merchants to adopt transparent pricing models like Interchange++, which separates interchange, scheme, and acquirer fees for clarity and cost savings. In regulated markets like the EEA, caps (e.g., 0.2% for debit, 0.3% for credit) reduce costs, benefiting merchants using Interchange++. Customers may face higher prices if merchants offset fees, while issuers rely on these fees for revenue.

Monitoring this KPI, using card scheme websites for current rates, helps merchants optimize costs by favoring low-fee payment methods, leveraging local acquiring, or using Enhanced Scheme Data to reduce US fees, ensuring compliance and financial efficiency.