Every country in the world has experienced an increase of electronic payment processing within the last few years.  Credit and debit cards continue to charge forward rapidly as the preferred method of consumer payment.

Several controversies surround credit and debit interchange fees.  Over the past few years, discussions about interchange have heated up.  In some countries, such as the US, interchange has increased.  In Australia, interchange has decreased.  Debates over interchange continue to rage in countries throughout the world.

For acquiring banks interchange is a cost of providing services to merchants.  For issuing banks interchange is a fee obtained for providing their services to cardholders

An increase in the interchange fees means an increase in the fee issuers receive for every card transaction their customers undertake.  An increase in the interchange fee leads to an increase in acquirers’ costs for every card transaction processed.  Therefore, acquirers ultimately respond to an increase in the interchange fee by increasing their merchant fees.   The merchants, of course, pass the cost on to buyers in the form of increased price of goods.

If interchange decreases, issuing banks receive less money.  Issuers seek to make up lost revenues through other means.  For example, an issuing bank may reduce card holder benefits associated with a card.  Or, the bank may begin to charge cardholders additional fees.

No matter which way interchange goes, banks make money.  And consumers pay the costs.

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