Interchange fees are transaction fees used in the payment card industry, which the card-issuing bank charges whenever a credit or debit card is used to make a transaction. The fees are charged to the merchant bank, or acquiring bank, and are paid to the card issuer. The fee covers the cost of handling the transaction, managing fraud, and the risk of approving or accepting the payment.
In 2011, Congress passed the Durbin amendment, which requires the Federal Reserve to limit fees charged to retailers for debit card processing. This amendment included provisions that affected both regulated debit cards as well as unregulated. The main difference between the two, is the size of the bank that issues the card. Regulated debit cards are issued from banks with assets over $10 billion. There is a cap to the interchange fees – 0.05% and $0.22/transaction for all debit and prepaid cards. For unregulated, or exempt, debit and prepaid cards, these are issued by banks with less than $10 billion in assets and are not subject to the interchange cap. However, transactions made using reloadable prepaid cards and debit cards issued to government-administered payment programs are exempt from the interchange fee standard.
Interchange Fees Vary By Country
Interchange fees differ from country to country. For example, Canada has one of the highest interchange fees in the world at 1.78% (79% higher than the global average), whereas France’s interchange fee is only 0.21%. Below are the interchange fees for North American and European countries and how they compare to the global average.
|Country||Interchange Fee||% Change vs Global Average|
Can you earn interchange fees from offering a prepaid card?
While interchange fees are non-negotiable and are set by companies such as Visa and Mastercard, prepaid card issuing processors can add additional fees on top of the interchange fee (or decide what percentage of fees to pass onto businesses or end consumers). An issuing processor is a company that is responsible for processing transactions. They connect directly with the networks and issuing bank to provide the system of record, manage issuance of cards, authorize transactions, and communicate with settlement entities. This is why debit card programs will have wildly different interchange revenue setups.
Offer Prepaid Debit Cards with Hydrogen
Hydrogen allows businesses to launch prepaid card programs for employees, contractors, clients, partners, or as part of a fintech app. As opposed to some banking as a service and card issuing providers, every Hydrogen business earns interchange revenue from the cards offered on our platform! This revenue can be used as rewards, cash back, or to sustain a new business model for a startup. Contact us today to learn more or start building your card program with Hydrogen Lab.