Every type of financial transaction that requires technological support—such as card or online payments—involves different actors: the issuing bank of a credit card, the networks/brands, the acquirers, and the online platforms where the charges are processed. As compensation for providing key services to ensure this process runs smoothly, banks (or financial institutions) that issue credit, debit, and similar cards charge the well-known interchange fee.
While the interchange fee is traditionally charged by banks for their service provision—on each business sale or payment—this commission can also be very useful in your own business model. If you have a fintech or offer your own financial services, you can become the issuer of your payment methods. Consequently, with this fee, you can have a new source of income and leverage your business model.
Below, we tell you everything you need to know about the interchange fee, how it works, and how a fintech business model can leverage it to offer greater benefits to consumers—and, of course, profit from it.
In Latin America, the interchange fee is known by various names, such as tasa de intercambio, tarifa de intercambio, or cuota de intercambio. However, it is also common for businesses to refer to these fees as transaction fees or payments. Although the translations are correct, as they are used differently in each Latin American country, here we will always refer to this concept as interchange fee, or tasa de intercambio.
So, what is an interchange fee or tasa de intercambio? Simple: it is a small percentage that the card-issuing entity (such as a bank, a financial institution, a fintech, or the like) charges the bank used by a business/service on the transactions and operations it has authorized for this business.
Like other charges found at different stages of credit card transactions, the interchange fee serves to compensate for services. In this case, the transfer of funds by the issuing banks (at the consumer's request) in each transaction—which is a process with costs.
Although this fee can be charged on online or physical transactions, generally, the most common case is when it is charged at a local business that has a bank terminal or digital platform that allows accepting payments via physical or virtual cards, digital wallets, and other electronic means.
To understand why the interchange fee is charged, we explain how many actors participate in the flow of a credit transaction:
When a customer uses their card, the issuing bank/finance company automatically deducts the interchange fee from the total transaction amount. In other words: in a transaction of US$ 100 (assuming the previously defined interchange rate is 1%), the issuing bank receives US$ 1 for this purchase.
Meanwhile, other fees that benefit other stakeholders involved in the process (such as card networks and acquiring companies or gateways) will also deduct a percentage of the final value that the merchant receives for the transaction.
Although the issuing bank benefits the most from this fee, it is the credit networks, like Visa and Mastercard, who define it. They act as intermediaries for the payments made by issuers to the banks that receive the amount of a purchase. The values usually vary around:
the type or category of the business (for example: different rates are charged for hotel chains and restaurants);the type of card (debit or credit);if the card is personal or corporate (corporate cards usually have higher fees);if the transaction is digital or physical (online purchases have higher fees than those made at physical locations);due to specific agreements with merchants with a high volume of transactions (more transactions, lower rates).Although in some places there are caps for this fee, there are others where there are not, as the regulation differs in each country.
In Argentina, the Central Bank set a maximum cap on interchange fees in 2017: for debit cards, 0.61%; for credit cards, 1.30%. In the United States, for example, there is no cap for purchases made with credit. Meanwhile, in the common market of the European Union, interchange fees can go up to only 0.3%. In Brazil, while there is no cap for credit, debit has a limit of 0.8% – and, in 2022, the country’s Central Bank imposed a cap of 0.7% for purchases with prepaid cards.
Practically and at the corporate level, there is no consensus, as the goal is generally to keep interchange fees as low as possible. The aim is to encourage more businesses to invest in acquiring the technological infrastructure (such as electronic acquiring terminals) to accept credit cards as a payment method without worrying about the amount of the interchange fee.
Meanwhile, at the market level, the aim is for fees not to be too low to encourage more companies to become card issuers. According to specialists, charging values that are not too negligible helps combat monopolies and creates a healthy competitive market for local businesses and consumers.
In the end, the challenge with interchange fees is to achieve a balance in percentage to meet both objectives. The pursuit of this balance is what drives banking entities in each country to establish a range or limit for the interchange fee amount.
Currently, with the advancement of embedded finance and banking as a service, more and more companies can issue their own cards at increasingly lower costs. In practical terms, if your company operates like a bank that offers cards, the interchange fee will provide you with extra income on each transaction.
Although this represents a small percentage of sales, the interchange fee generated from each transaction is a good leveraging option for new businesses and ventures to obtain more capital to finance new products and services.
By encouraging your customers to make transactions with cards issued by your company, you can take advantage of the percentage you receive from the interchange fee to stimulate the growth of your business model. For example:
By making cards more accessible to those who did not have them before (or who were not satisfied with their previous cards or issuing banks), you can attract these individuals to your company or fintech;It is possible to create customer retention strategies by offering them promotions, discounts, cashback, and more, made viable by the extra income represented by the interchange fee;If your company eliminates intermediary banks and starts offering its own cards for employees and suppliers, it can keep them under its own financial ecosystem—complementing it with digital accounts and other financial services that are easy to adopt with a good technology partner.That is, even if the interchange fee does not give you particularly high amounts, it can be applied in different strategies that will surely improve the level of acquisition, retention, and customer loyalty in your company. Enjoy it!
Journalist and Master in International Relations from Rio de Janeiro. He was a reporter, editor, producer, and researcher before joining our Marketing team. Curious and playful, he compares himself to a sponge: wherever he goes, he likes to absorb, learn, and experience what each place uniquely offers. He loves music, books, pets, cooking, social issues, soccer, and tennis.
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