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Interchange Fees Explained: A Digital Banks Perspective

Interchange fees are at the heart of the payments ecosystem, and for digital banks, understanding their structure is critical. Here's a quick breakdown: When a card transaction occurs, merchants pay an interchange fee that’s split among issuing banks, acquiring banks, card networks, payment processors, and fintechs.

Key factors influencing interchange fees:

➡️ Credit vs. Debit: Credit cards have higher fees. ➡️ Rewards Programs: More benefits for users mean higher fees. ➡️ Online vs. In-Person: Online transactions are riskier, hence costlier. ➡️ Consumer vs. Commercial Cards: Corporate cards charge higher fees. ➡️ Merchant Category (MCC): Fee rates vary by industry (e.g., supermarkets vs. gas stations). ➡️ Card Network: Visa/Mastercard fees are lower compared to AMEX.

For digital banks, interchange is a significant revenue source, especially when paired with innovative reward programs or partnerships. However, optimizing this revenue requires navigating these factors strategically.

Author

AiUTOMATING PEOPLE, ABN ASIA was founded by people with deep roots in academia, with work experience in the US, Holland, Hungary, Japan, South Korea, Singapore, and Vietnam. ABN Asia is where academia and technology meet opportunity. With our cutting-edge solutions and competent software development services, we're helping businesses level up and take on the global scene. Our commitment: Faster. Better. More reliable. In most cases: Cheaper as well.

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