How Do I Understand The Interchange Fee Schedule for MasterCard?

MasterCard’s interchange fee is the fee paid by your bank to your customer’s bank for their part in the process of transacting a credit card payment. Each credit card brand sets their own interchange and this fixed amount is paid by your credit card processor out of the fee you pay them. It sounds simple. This fixed rate makes up a portion of the percentage you pay per transaction for each credit card you process.

That’s the basic formula, yes, but it doesn’t present the complete picture. Although the term “interchange” appears on the surface to mean one rate, that’s not the case at all. Interchange is actually an extensive list of fees determined by what kind of credit card is being used for payment, how it’s being presented for payment, and where it’s being presented for payment. MasterCard, as well as all the other credit cards brands disclose their interchange rates and operating rules as long with interchange fee schedule for MasterCard on their websites and it’s important to understand the criteria necessary to meet each rate.

Types of Credit Cards

Classifications for credit cards include: basic credit and debit cards, rewards cards, corporate or business cards and international cards. Within each category, there’s a breakdown of what the interchange rate will be for each credit card type. Categories in basic credit cards, debit cards, rewards cards, company cards, commercial cards, international cards, and more.

Payment Options

Credit card payment transactions break down into two basic categories: card present transactions and card not present transactions. Interchange rates for each category are broken down again to cover options such as whether the card is swiped, if the information on the magnetic stripe can be verified, if the information is input by hand, if the information that is input by hand is verifiable, if the transaction is batched and settled according to terms and conditions, and interchange fee schedule for MasterCard, etc.

Credit Card Purchases

Last, but not least, interchange rates are affected by where you shop and what items or services you purchase. Let’s take a look at how these distinctions affect your MasterCard interchange rates.

Let’s say you’re the owner/operator of a hometown pharmacy. Mrs. Smith comes in and purchases $25.00 worth of necessities and presents her basic MasterCard for payment. For this credit card transaction you will pay 1.58% + .10 or $0.50 in interchange fees.

But when Mrs. Jones gets to the register, she presents her MasterCard rewards card to make the same $25.00 purchase and you pay 1.73% +.10 or the equivalent of $0.54 in interchange fees.

Now Mr. Young comes in and purchases a few supplies for his office and uses his company’s basic business MasterCard to pay for his $25.00 worth of items. His $25.00 purchase will cost you 2.65% + .10 or $0.76 in interchange fees.

Then Mr. Thomas comes in and buys $25.00 worth of items and uses his basic debit card and you pay 0.05% + 0.22 or $0.23 in interchange fees.

So you’re thinking, what’s the big deal? The difference between the transactions ranges from a few cents to a little over $0.50. It doesn’t amount to much for your $25.00 sale. But imagine how those cents add up on a whole day’s worth of sales!

Conditions of The Sale

So now you have a basic understanding of how the type of credit card affects the interchange rate you pay for each credit card transaction. But the type of card is not the only aspect of the transaction that affects your rate. To qualify for each interchange rate, for each different type of credit card, used in different transaction scenarios, there are specific requirements that must be met, as listed on the MasterCard website. For instance, to get the 1.58% + .10 on Mrs. Smith’s transaction:

1. It must be a card present transaction, swiped at your point of sale terminal so the information from the magnetic stripe on the back of the card can be verified.
2. The purchase amount must be authorized and approved.
3. And the transaction must be batched and settled within the allowed time limit.

If you do not meet the interchange fee schedule for MasterCard for a specific rate, the transaction can no longer be considered for that rate and will be bumped to the next interchange rate for that type of card in that type of transaction.

Confused? Don’t be. MasterCard offers a comprehensive list of interchange fees on their website. Each type of card, used at each type of business, and processed in all the different ways possible are broken down in detail. But if you’re still confused, a basic understanding of the steps you need to take to meet the requirements for each rate will help you maintain control over how much you pay out in MasterCard interchange fees.