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Interchange rates are the lifeblood of card transactions in corporate payments. Each card swipe puts a series of events in place, and interchange compensates the issuer for the value they’re providing the merchant with each purchase. Keep reading to learn more about interchange, how interchange rates are determined, and how you can benefit from interchange.
Your basic card payment model has six key players to know:
Before you can understand interchange, you must first understand the MDR (or merchant discount rate). MDR is the amount the acquirer charges the merchant for each purchase. Interchange is the portion of MDR that gets remitted back to the issuer. The remainder of the MDR stays with the acquirer.
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Interchange is the fee paid by the acquirer to the issuer in exchange for the value and benefits the merchant receives from the issuer when they accept electronic payments, such as credit or debit card transactions. The value the issuer provides includes:
The card networks (or card schemes) set the rules that govern credit and debit transactions and set interchange rates. Popular card networks are MasterCard and Visa. Each has different rules and rates.
Interchange rates can be updated at any time and are based on the individual card network. For example, in North America, MasterCard updates interchange rates annually in April and Visa in October.
Interchange rates are influenced by many factors, including:
While the issuer receives interchange, cardholders benefit from card transactions when their issuer offers a rebate. For example, WEX merchants who use a virtual card receive a rebate on every transaction, which helps their accounts payable teams convert a cost center into a potential revenue generator.
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The information in this blog post is for educational purposes only. It is not legal or tax advice. For legal or tax advice, you should consult your own legal counsel, tax and investment advisers.
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