PaySpace - Glossary - Interchange Fee

Interchange Fee

July 9, 2019
Glossary

What is the interchange fee?

The interchange fee (also known as a transaction fee) is the per-transaction charge paid by the merchant to a payment processor. Simply put, every time someone buys a product/service from a merchant’s website, he gives away a fixed interchange fee to a PSP he uses. The fees are paid to the card-issuing bank to cover handling costs, fraud, and bad debt costs and the risk involved in approving the payment.

An example of an interchange fee

Imagine a merchant called Bob. He sells marketing courses online, $1000 per item. His payment processor is PaySpacelv. The interchange fee of PaySpacelv is 1.2%. Thus, every time someone buys a course from Bob’s website, he is automatically charges 1.2% out of the transaction. As a result, he gets $988, while PaySpacelv gets $12. The same process happens every time a consumer purchases a course from Bob’s website.

Why interchange fees differ?

Different PSPs have different interchange fees. The fees vary due to payment processor policies, and a business type of a merchant. Those who run high-risk business(gambling, gaming, adult, CBD, pharma, e.g.) have no choice but to pay more. The deal is, such businesses might bankrupt due to a high volume of chargebacks. The acquiring bank will have to cover the losses. That is risky. That’s why banks have higher fees for those who are involved in high-risk industries.

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