As noted by American economist and author Milton Friedman in his famous book entitled “There’s No Such Thing As a Free Lunch,” interchange fees, unfortunately, are not a thing of the past and still apply to digital ordering.
What are Interchange Fees?
Merchants are charged certain applicable fees by card networks when processing payments in the form of debits or credits. These charges are called interchange fees.
So, whether your restaurant accepts payments in-store and in-person, or payments are processed digitally by your online ordering system, interchange fees make up most of the charge and does impact bottom-line sales to a certain degree. For example, debit cards charge an estimated average interchange fee of 0.3%, while payments made by credit card generally charge upwards of 1.81%.
Interchange Fees Explained
Card associations such as Visa and Mastercard process the credit or debit card transaction and funds are then routed to the appropriate acquiring (or merchant) bank, from the issuing bank.
Card associations also charge the acquiring bank(s) a fee to utilize their banking systems and services. Respectively, this is their form of interchange fees. Normally, it is a fraction of the total amount of transactions with an additional fixed amount. For example, it can be 3% + $0.08 as example.
Another interchange-related fee you should be aware of is a separate fee charged by card associations called a network fee, estimated to be around 0.05%.
Other Notable Mentions
- As of 2020, Visa and Mastercard are still ahead of the curve in terms of leading card networks.
- Visa gains a 60% foothold of its share of the credit and debit card market.
- Mastercard holds a 30% share of the market.
- Mastercard estimated charges: between 1.55% and 2.6% per transaction.
- American Express estimated charges: 2.5% to 3.5% per transaction.
- Visa estimated charges: 1.43% to 2.4% per transaction.
- Discover estimated charges: 1.56% to 2.3% per transaction.
- Most interchange-related fees are also dependent upon the type of card used. For example, debit card usage often incurs smaller interchange rates, compared to credit cards. While the use of premium rewards credit cards imposes greater interchange fees than their counterparts.
- Interchange fees also depend on the type of transaction: Card Present (CP), Card Not Present (CNP), In-Store, Online, etc.
- Discover Card interchange fees are up to snuff and the same except for recurring and one-off payments. Lower interchange fees can be expected for those being charged a recurring monthly fee by Discover.
- Unlike other card networks, American Express charges a discount rate instead of interchange fees. Although it is referred to by a different name, essentially, it achieves the same end in mind. At the end of the day, fees are still fees and result in money out of your restaurant’s digital ordering sales pockets. Thus, whether it is an in-store or online transaction, it still comprises a specific percentage (%) plus an additional fixed transaction fee ($).
Chart of Estimated Interchange Fees & Rates. To learn more and view a detailed breakdown of Visa, Mastercard, Discover Card, and American Express interchange fees and rates, please click here.