What are interchange fees, and why should you care?

What are interchange fees, and why should you care?

Each time consumers choose to make purchases with a credit card, an interchange fee is charged for credit card processing. Those paying with plastic may not know about these fees, as they aren't the ones paying them -- at least not directly. But they -- as well as business owners -- should be aware of these credit card processing fees. The merchant pays the fees through a merchant account for the ability to accept and process credit cards.

What are interchange fees?
Every merchant that accepts credit cards must have a merchant account for credit card processing. Each time credit card processing occurs through a merchant account, interchange fees are charged. The fee is for using the credit card interchange process between the acquiring bank (where the merchant account is held) and the issuing bank (the bank that issued the card).

Why should you care?
It sounds reasonable for fees to be charged for credit card processing. After all, someone must be paid for the service. So, why should you care? Some of these interchange fees have been considered to be unreasonably high.

In fact, Sen. Christopher J. Dodd (D-Conn.), who led the effort to enact consumer credit card reforms in the U.S. Senate, reportedly said he plans to take on these fees.

According to a report in the Baltimore Sun, "Dodd said it was outrageous that a credit company could charge more than 30 percent interest on purchases. It was equally appalling, he said, that big credit card companies make so much money from small store owners and other entrepreneurs who have to fork over a portion of their profits when customers pay with credit cards."

Many businesses feel they have to mark up prices to be able to afford the interchange fees. Because businesses feel they must accept credit cards to satisfy consumers, many will spend money on interchange fees, even when they feel they cannot afford it. This is believed to be the cause of some establishments going out of business. Some of these interchange fees can be as high as 2 percent per credit card transaction.

According to UnfairCreditCardFees.com, the revenue from interchange fees today is three times what it was in 2001. Consumers may feel they pay a large amount in interest rates and other fees associated with credit cards. However, interchange fees actually are the largest source of income for credit card companies. UnfairCreditCardFees.com says that in 2008, interchange fees brought in revenue more than twice as much as credit card late fees, and more than three times as much as fees charged for ATM use.

Published: June 12,2023