Interchange fees: what they are and how they work
This article was last updated on February 25, 2020
Debit and credit card processing fees in the US can be complicated. But it’s important to understand the underlying costs involved in processing a transaction to make sure you’re not being overcharged.
In the US, interchange fees are a major cost for businesses. As a business owner, any of your transactions can be downgraded by credit card schemes (the largest are Visa and Mastercard). A downgrade means you don’t meet specific requirements established by these networks and will pay a higher fee. You may also be charged integrity fees – essentially fines for not including all relevant information. All of these easily add up and account for a huge chunk of processing costs.
For example, Visa charges integrity fees ($0.10/transaction) on consumer or commercial debit and credit and prepaid transactions that don't qualify for the Custom Payment Service (CPS) interchange rate. In other words, if your transaction is downgraded, you'll likely be charged an integrity fee as well.
So, when performing a transaction, follow the tips below to take control of your interchange costs and avoid extra fees.
Address verification service (AVS) is a system that verifies the cardholder’s billing address with the card issuer. AVS is a well-known fraud-fighting tool and has a big benefit in the card-not-present world. But not many know that this can play a major role in your cost savings.
Visa and Mastercard both support AVS globally. In the US, Visa incentivizes businesses to use AVS by providing a lower interchange rate when you perform an AVS check on transactions.
Example of your savings: A card-not-present Visa rate on a traditional credit card is roughly 1.80% + $0.10. Without AVS, your rate would be as high as 2.30% + $0.10. That’s almost 50 basis points savings on your interchange and a $0.10/transaction saving in integrity fees.
Settling your transactions in a timely manner helps reduce interchange downgrades.
Settling your transactions in a timely manner helps reduce interchange downgrades. For most US cards, the capture (clearing call) must happen within one day of the authorization to qualify for the lowest interchange rates, except for certain travel and entertainment businesses, which can be captured within 8 days. If you're working with Adyen, set the capture delay to either “Immediate” or “1 day” to benefit from the reduced costs.
For card-not-present transactions, merchants should send identifying information about the transaction, such as their company's URL or email address. This will be shown on the cardholder’s statement and helps the shopper identify what they paid and to whom. It also lets the shopper know who to reach out to if there’s a problem. The transaction will be downgraded if this information is missing.
Certain types of merchants may send additional transaction information to lower an interchange rate. If your company is B2B, working with business clients instead of consumers, you can submit transaction-level information (line item details and the tax amount, for example) to qualify for Level 2/3 interchange rates.
Always swipe a card or use a chip-and-PIN entry.
Whenever possible, particularly in point of sale settings, avoid entering credit card details manually. Always swipe a card or use a chip-and-PIN entry. This not only improves security processes in the store, but also ensures that you can benefit from a lower interchange rate.
These are just a few simple steps you can take to avoid higher interchange rates and integrity fees. Adyen will always work with its customers to ensure they get the lowest fees based on rules set by the major card networks. And, thanks to our transparent billing, you can be sure we pass any savings to you directly.
Our team of payments experts is also on hand to answer further questions. To learn more about Adyen and how we can help you reduce your credit card processing fees, get in touch today.
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