Card brand fees are the charges assessed by credit card companies like Visa, Mastercard, and Discover on every transaction processed through their networks. These fees are generally a percentage of the total transaction amount, plus a fixed fee (known as the “interchange” fee), and they can vary depending on the type of card used, the merchant’s processing method, and a number of other factors.
As a merchant, you’re likely to see these fees show up on your processing statement as “interchange,” “interchange plus,” or “cost plus” charges. And while you can’t avoid them entirely, understanding how they work and what goes into them can help you save money on your processing costs.
Card brand fees are also sometimes referred to as “interchange” fees, “interchange plus” fees, or “cost plus” fees.
What Goes Into Card Brand Fees?
The interchange fee is the fixed portion of the card brand fee, and it’s set by the credit card companies. This fee goes to your acquirer (the bank or processor that handles your credit card transactions) to cover the cost of processing the transaction.
The remainder of the card brand fee is a variable percentage of the total transaction amount, and it goes to the credit card company itself. This percentage can vary depending on a number of factors, including the type of card used, the processing method used, and whether or not the transaction is qualified for a lower rate.
What Are Qualified, Mid-Qualified, and Non-Qualified Rates?
Qualified rates are the lowest possible card brand fees you’ll pay, and they’re typically only available to merchants who process a high volume of transactions and/or process mostly credit card transactions that meet certain criteria (e.g., transactions that are swiped or inserted instead of manually entered, transactions that include the customer’s ZIP code, etc.).
Mid-qualified rates are slightly higher than qualified rates, and they typically apply to transactions that don’t meet all of the criteria for a qualified rate. For example, a manually entered transaction might be considered a mid-qualified transaction.
Non-qualified rates are the highest card brand fees you’ll pay, and they typically apply to transactions that don’t meet any of the criteria for a qualified or mid-qualified rate. For example, a transaction that’s processed without the customer’s ZIP code might be considered a non-qualified transaction.
What Are Surcharges and Downgrades?
Surcharges are additional fees that some merchants choose to add to their transactions, and they’re generally passed on to the customer in the form of a higher total bill. For example, a merchant might add a surcharge to a transaction that’s processed as a non-qualified rate.
Downgrades are similar to surcharges, but they’re typically assessed by the acquirer or processor instead of the merchant. For example, if a merchant processes a transaction as a non-qualified rate, the acquirer or processor might choose to downgrade the transaction and charge the merchant a higher fee.
What Are Card Brand Fees Used For?
The interchange fee goes to your acquirer to cover the cost of processing the transaction, while the remainder of the card brand fee goes to the credit card company.
In general, the credit card companies use these fees to cover the cost of running their networks and to fund rewards programs (e.g., cash back, points, miles, etc.), but they don’t generally disclose how much of the fee goes toward each specific purpose.
How Can I Save Money on Card Brand Fees?
There are a few different ways you can save money on card brand fees, but the most effective way is to process as many transactions as possible at the qualified rate. To do this, you’ll need to use a processor that offers competitive rates and provides the tools and resources you need to qualify for the lowest possible rates.
In addition, you can save money by surcharging your customers or passing the cost of card brand fees on to them in some other way. For example, you might add a small fee to all transactions or require a minimum purchase amount.
Finally, you can save money by accepting only certain types of payments. For example, you might choose to accept only cash or checks, or you might choose to accept only credit cards that offer a low interchange rate (e.g., business cards, government cards, etc.).
The Bottom Line
Card brand fees are an important part of the credit card processing landscape, and they can have a significant impact on your bottom line.