What is Interchange Fee? Definition and Meaning - Ikajo Glossary


Interchange Fee

Interchange Fee is the commissions that credit institutions pay each other as part of working with credit and debit cards.

In other words, the interchange fee is a commission that the acquirer bank of the seller pays for the execution of the payment transaction. This commission helps the issuing bank to compensate for some of the risks and costs to which it is exposed by servicing card accounts. The payment system has the right to establish a standardized interbank commission for international transactions and transactions within the country.

For instance, if the bank servicing the trading network conducts a transaction with a card issued by another credit institution, then it pays a certain fee to the issuer since the bank needs to check the card by sending a request to the bank that issued the card.

The amount of the interchange charge influences the acquiring commission and, accordingly, the profit of the trade organization.

In addition to the standard fee, there is also another, when the issuer is already paying the bank money. An example of such a fee is cash withdrawal from an ATM of another bank.

The amount of the interchange charge affects the commission on the range of services on a bank card in a given outlet and, accordingly, its income. Commission depends on the surcharge to the cost of goods.

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