What they are, Interchange fees, how are they calculated, and how you can save money. Find out more about how card processing got cheaper in Australia.
The Reserve Bank of Australia has announced an Interchange fee cap, which applies to domestic transactions for both consumer and commercial cards, effective from July 1, 2017.
Interchange fees for credit cards won't be allowed to exceed 0.88%, and no debit fee can exceed 16.5 cents (if levied as a fixed amount) or 0.22% (if levied as a percentage amount). All caps include Goods and Services Tax (GST).
Huge potential cost savings for businesses.
This new regulation will result in significant reductions to domestic Australian Interchange fees – a huge potential card processing cost saving for businesses operating in Australia.
This is great. But how does Interchange affect businesses and card processing in other markets?
Let’s start from the beginning.
What are Interchange fees?
Interchange is a fee set by card schemes, which is paid to the issuer, for every credit and debit card transaction. They are usually the biggest expense when it comes to card processing.
They're also the biggest headache; the structure and fees vary for each market, and they change all the time.
Traditionally there was no transparency into how these fees were calculated. Large businesses with plenty of volume could negotiate lower fees, while smaller businesses were forced to pay the full amount.
Markets dominated by the large international schemes are most vulnerable because businesses can’t refuse to accept the payment methods used by their customers.
The good news is that efforts are being made to standardize Interchange, with stricter rules, the introduction of fee caps, and an overall transparency that we haven’t seen before.
Europe kicked this level of standardization off back in 2015, and Australia has just jumped on the bandwagon.
The map below gives an overview of regulated markets around the world.
What impacts how much you pay?
Drivers that impact the fee include region, sales channel, card type and business model. Understanding these factors allows you to optimize the process and get the best rates.
Here are some examples:
Just like mobile roaming fees, transactions are generally cheaper if processed locally. It’s an advantage to use a local acquirer where possible because this is the only way to benefit from local regulations and incentivized fees (explained below).
Interchange++: the transparent billing structure
Not all billing structures were created equal.
Many payments processors bill using a blended rate that charges an average processing cost, plus a fixed markup. So you’re charged the same price for every transaction, which makes it easy to understand, but it’s not transparent. Plus, it isn’t linked to Interchange fees, so there’s no guarantee your processor will pass on any savings made from a fee cap.
Your costs go down as Interchange goes down.
Interchange++ is a pricing model, which tracks the Interchange rates. So, when they go down, your costs go down. And you get to see exactly what you are charged for every transaction - so there’s no danger of hidden costs or additional surcharges.
Interchange fees vary from market to market. In the U.S. and Australia, for example, Visa and Mastercard grant lower rates to specific businesses like charities, travel agents, streaming services, and utilities. You only benefit from this saving if you are billed using Interchange++.
We worry about Interchange so you don’t have to
You have better things to do with your time than track ever-changing Interchange rates and regulations. So we do it for you.
We will keep you informed about any changes that will affect you. Our dedicated team monitors rates and regulations to ensure you get the best deal. Plus, our local acquiring licenses in key markets around the world give you access to lower domestic rates.
Card processing transparency
Transparency is central to everything we do at Adyen. Which is why you are always billed using Interchange++, so you see exactly what you’re being charged. And any savings we make for you, are passed on at no extra cost.