Understanding of "Interchange Rate"

Interchange RateVISA Interchange is the transfer fee. The merchant’s financial institution pays cardholder’s bank every time a VISA product is used. This is usually a small percentage of the transactions for the credit cards and a fixed amount for debit cards. Interchange is the fee volume which depends on the type of card, related risks and the country where transaction was initiated. Fees may vary depending on the location of the financial institution of the cardholder and the country or economic zone of the merchant’s bank. Interchange provides the payment system’s work that allows financial institutions to connect merchants and cardholders in more than 170 countries. It allows financial institutions integrated into the VISA system to provide benefits to cardholders — from protection against fraud to 24 hours customer service through the balanced economic relationships between all participants. VISA charges interchange fees as a payment for transaction between financial institutions. Merchants do not pay interchange fees; merchants pay «Merchant Discount» to their bank. This is a key difference, because the merchant buys a variety of the processing service in their bank, all of these services may be included in the cost of «Merchant Discount» which is usually transaction fee.

A Typical Transaction

VISA payment transactions take place every minute around the world through VisaNet, the VISA network that connects merchants, their financial institutions (banks-acquire) and cardholder’s banks.
• A cardholder selects goods, agrees to pay it by retailer’s price and provides his card for payment.
• Merchant provides purchase details, including VISA card information to the Bank for making transaction.
• The merchant’s bank sends the details of the purchase to the cardholder’s financial institution.
• Following the correct procedure, the merchant receives a «payment guarantee» and the cardholder receives the goods.
• Cardholder’s financial institution transfers an amount less than the retailer price, based on interchange rate. Interchange rate may be unique according to a direct agreement between cardholder’s financial institutions and merchant or it can be VISA payment system specified standard rate.
• Merchant’s financial institution credits the merchant’s account for the amount less than the price of services including interchange rate; transaction processing costs, terminal rent and customer support; margin of financial institution and the Processing Clearinghouse and other expenses. These costs are negotiated directly between Merchant and his payment service provider.

Interchange rate is the cost of payment using VISA card, the same as the cost of making payment using cash, checks and other payment forms. For example, cash counting takes some time and as a result of erroneous calculation, part of the money may get missing. Checks may not be valid, and the seller will incur a loss due to insufficient funds provided by the client. The electronic payment cost includes more guarantees of the payment, because the transaction is approved by the customer’s bank.

If you want to get more information about the payment system mechanisms, please contact us for consultation. We may also assist you to open Clearinghouse and your own Offshore Bank.
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