Please more information relating to Interchange please see part 1 of Interchange Series
Our previous article “Comparing Your Interchange to the Competition”, provided a useful resource (The Federal Reserve Interchange Study) to utilize when comparing interchange rates. This article dives deeper into interchange rates and one main pitfall to be aware of when comparing your interchange to the competition.
The Fed Study’s Average Interchange per transaction is a very useful statistic as it shows which card payment network has the best interchange on average. The key discrepancy to note however is that it represents gross interchange.
Most vendors use their gross interchange rate when discussing interchange. What they often don’t talk about are the fees being charged behind the scenes. The most telling factor when choosing an EFT vendor and card payment network is their Net interchange rate.
If you are seeing your income go down month after month, it could be because of the small extra fees being charged. Transactional fees are not always disclosed, and some can be hidden in Network Operating Rules. Too many small fees quickly start adding up fast and cutting into your debit card portfolio.
Transaction fees should always be less than your gross interchange. But if the ratio becomes too close, where your transactional fees are eerily similar to your gross interchange, you are in danger. Transactional fees only amount to part of the total monthly fees paid to vendors. Other base fees like participation fees or reporting fees also factor in.
While each fee may be small, once you add them up your net interchange is not the big fish you were told stories about.