The Impact of Interchange Fees on Businesses | Hydrogen Blog
The Impact of Interchange Fees on Businesses

The Impact of Interchange Fees on Businesses

Accepting credit and debit card payments is a must for consumer-based businesses, as they are the most popular payment methods for consumers. However, accepting card payments comes with numerous fees that can impact your small business’s bottom line. Interchange fees are one of the most significant types of card processing fees merchants are required to pay.

What Are Interchange Fees?

Interchange fees — also known as swipe fees — are part of credit and debit card processing costs. Merchants pay interchange fees to card-issuing institutions (Visa, Discover, Mastercard, etc.) every time a customer uses their credit or debit card to make a payment. 

These fees are meant to cover the handling costs and risks involved in approving a card transaction. They make up the largest share of card processing fees.

How Are Interchange Fees Calculated?

Card-issuing institutions set interchange fees, which means the amount you pay varies based on the customer’s credit or debit card. Interchange rates are typically adjusted twice a year to reflect current costs and risks.

Numerous complex variables go into calculating interchange fees. To simplify the costs for merchants, credit and debit card companies apply interchange fees as a flat fee plus a percentage of the sales total, including taxes. There is an interchange fee cap of 0.05% and $0.22 per transaction for all debit and prepaid cards.

What Factors Influence Interchange Fees?

Several factors influence interchange fees, including:

  • Card type: Debit card interchange fees are typically lower than credit card interchange fees due to lower risk. Rewards cards usually have higher interchange fees to pay for the cardholder perks.
  • Transaction type: Card-not-present (CNP) transactions tend to have higher interchange fees because they are considered riskier than card-present (CP) transactions.
  • Business type: Rates vary based on the type of business you operate. Typically, food service, hospitality, and travel businesses have high interchange fees. 

How Do Interchange Fees Affect Businesses?

Business size also impacts interchange fees. Larger merchants are often charged lower interchange rates because they usually have strong negotiating power with banks and credit card companies. Small businesses typically pay excessive interchange fees because they don’t have the size or leverage to negotiate lower rates.

Generally speaking, there isn’t much a small business can do to lower interchange fees. You can choose not to accept credit cards with high interchange fees, or you could charge your customers more for your products and services to help offset the interchange costs. However, both of these options come with the risk of losing business. 

How Hydrogen Can Help Your Business With Interchange Fees

At Hydrogen, we help businesses manage interchange fees through our Interchange Fee Share program. We offer some of the highest interchange rates in the embedded finance industry. You can earn cash back on eligible transactions each month to help offset interchange fees. 

Save your business time and money with white label financial products and services from Hydrogen. You can sign up with us today to gain access to our many premium card features.


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