How Can I Lower Interchange Fees?

Interchange fees are the fees that credit card companies charge merchants when a customer uses their credit card to make a purchase.

The fee is usually around 2-3 percent of the total transaction amount, and it’s charged by the merchant bank at the time of the transaction.

This means that if you have a $100 bill in your wallet, and you use your Visa or Mastercard to pay for a $50 item, then the merchant will be charged $2.00.

The reason these fees exist is that they help cover the costs of processing transactions. These costs include things like:

 

• • Merchant account setup, maintenance, and monitoring

• • Customer service

• • Fraud prevention and detection

• • Security measures

• • Technical support

• • Cardholder services (such as fraud protection)

• • Advertising and marketing

These costs are passed on to consumers through higher prices, so the goal of lowering interchange fees would be to reduce this cost burden on consumers.

So How Do We Go About Doing This?

There are two ways to go about reducing interchange fees. The first way is to create new payment methods that don’t require an intermediary such as a merchant bank.

This method has been tried before, but unfortunately, it hasn’t worked out very well.

For example, Apple Pay was supposed to replace credit cards, but it didn’t work out too well. It failed because there wasn’t enough adoption to make it worthwhile for banks to invest in developing the technology.

Another option is to develop new technologies that allow us to process payments directly between customers and merchants without using the third party.

This could potentially eliminate some costs associated with traditional credit card processing, which would mean that retailers would pass those savings onto customers.

For example, imagine if Amazon were able to process all of its own sales directly from customers to itself. That would save them money since they wouldn’t need to pay any fees to a merchant bank.

They would also not need to worry about fraud prevention, security, customer service, or anything else related to running a business.

In addition to eliminating these costs, direct processing would also enable more convenient shopping experiences. Instead of having to deal with different websites, apps, and online stores, shoppers would just shop at one place—Amazon.com

If Amazon were able to process every single sale themselves, they would be able to offer better discounts than other retailers, since they wouldn’t have to compete against each other for market share.

Can Interchange Fees Be Negotiated?

Yes, but only if you negotiate with your issuer. If you want to get a discount on interchange fees, you should contact your issuing bank and ask for a reduction.

You may be surprised to learn that many issuers already offer discounts on interchange fees. In fact, most major banks offer up to 5% off interchange fees.

Some banks even offer discounts of 10% or 20%.

It’s important to note that the discounts offered to depend on several factors, including the size of your balance, the type of card used, and whether you use a rewards program.

The best time to negotiate is when you open a new account. This allows you to take advantage of the lowest possible rates while you’re building up your credit history.

What Does The Future Hold For Interchange Fees?

Interchange fees will continue to decline over time, as more and more people adopt mobile wallets.

Mobile wallets are becoming increasingly popular, especially among millennials.

According to research conducted by Bankrate, nearly half (47%) of Americans who do not currently carry a wallet plan start carrying one within 12 months.

Millennials are also leading the charge toward digital wallets. A recent survey found that almost three-quarters (74%) of 18 to 34-year-olds prefer to use their smartphones to conduct transactions rather than cash.

According to data from Visa, the number of consumers using mobile wallets increased by 50 percent last year alone.

As more people switch to mobile wallets, it’s likely that we’ll see fewer and fewer transactions processed through traditional payment methods like credit cards.

That means less revenue for banks and credit unions, which in turn means that they will have to cut back on their services.

As more people ditch paper checks and opt for electronic payments, banks will have to find ways to make up for lost revenues. One way they could do this is by offering merchants discounts on interchange fees.

This is exactly what happened after Apple Pay was introduced. The first month that Apple Pay became available, debit card transaction volume rose by 30%, according to Mastercard.

This increase in transactions was enough to prompt Mastercard to reduce interchange fees by 2%.

Apple Pay has been successful because it offers an easy, secure alternative to paying with plastic. It makes it easier for customers to pay with their phones, so merchants don’t need to worry about losing sales due to slow checkout times.

Apple Pay also gives them access to customer information, such as email addresses and phone numbers, which helps them build relationships with their customers.

With all these benefits, it’s no wonder why Apple Pay has become so popular.

Who Decides The Percentage Of The Interchange Fees?

Most banks set their own prices for interchange fees. However, some banks are required to follow certain guidelines.

For example, if you live in a state where there is a law requiring banks to pass savings onto their customers, then those laws apply to your bank.

In other words, if you live in New York State, then any bank operating in New York must pass along savings to its customers.

If you want to know how much your bank charges for interchange fees, check out our guide to finding the right bank for you.

If you’re concerned about interchange fees, consider switching to a bank that doesn’t charge them.

You might be surprised at just how many banks offer free checking accounts. Some even allow you to deposit money directly into your account without incurring any fees.

How Does My Bank Decide How Much To Charge For Interchange Fees?

Some banks are able to negotiate better rates with retailers than others. This is because they’ve built strong relationships with major retailers.

When negotiating deals with retailers, banks try to get a discount on the amount they pay for processing each transaction. In return, the retailer agrees to give the bank a portion of the profit generated from every sale.

The most common method used to calculate the amount of interchange fees charged to merchants is called “spread pricing”.

Spread pricing involves calculating the average cost per transaction for a given merchant type (i.e., restaurants, gas stations) and multiplying that figure by the total number of transactions made by that merchant.

Banks use spread pricing to determine what percentage of the overall transaction costs should go towards interchange fees.

For example, let’s say that a restaurant chain processes $10 million worth of transactions each year. If the average cost per transaction is $1,000, then the restaurant would owe the bank 0.1% of the total transaction value.

That means that 1/100th of the total revenue earned by the restaurant goes toward covering the cost of processing credit cards.

Merchants have two options when dealing with this situation: either accept the rate or refuse to take card payments.

They cannot legally force the bank to change the terms of the contract.

What Happens If I’m Not Happy With The Interchange Fee?

Many banks will work with you to find ways to reduce the number of interchange fees you pay.

For example, they may agree to waive interchange fees if you sign up for an auto-debit plan.

Or, they may offer special promotions to attract new customers who don’t mind paying higher fees.

It’s important to note that these discounts won’t always save you money.

There are times when it makes more sense to pay the full price for a service rather than take advantage of a discounted rate.

This could happen if you’re using a debit card instead of a credit card, or if you have a low balance in your account.

In those cases, you’ll still need to pay the standard interchange fee regardless of whether you choose to use a debit card or a credit card.

Conclusion

In conclusion, there are a couple of ways that you can lower your interchange fees, but the best way to go about doing so is to fully understand what interchange fees are and how they work.

This will help you to understand what lowering the interchange fees will do for your business and ensure that you do so in a legal and ethical way.

There are other ways to lower fees for small businesses, and we talk about them in our payment processing resource center.