Visual: The hefty cost of credit card payments

Interchange fees – the rates set by companies like Visa and Mastercard for processing card transactions – have long been a flashpoint between the merchants who pay them to accept card payments, the banks that enable them, as well as the networks they ride on.

These fees recently made the news after Amazon said it would ban UK-issued Visa credit cards next January, owing to Visa’s “high fees.”

Interchange fees vary between geographies. In Europe, these can range from 0.3% to 0.4% of the transaction, while in the US, they average at 2%. In Singapore, interchange fees can range from around 2.5% to 2.8%, according to one retailer that Tech in Asia spoke to.

While interchange fees are usually a relatively small percentage of the transaction, they can add up with the various other fees that apply to card payments.

The fees are largely opaque, and in many markets, including Singapore, payment companies aren’t required to disclose publicly what they charge. In the European Union, the US, Australia, and Malaysia, there are caps to how much payment companies can charge.

Interchange fees vary depending on a few factors, including:

• Card type: Fees are higher for credit cards compared to debit cards due to its associated credit risks.
• Premium vs basic card: Fees are higher for premium or signature cardholders, to compensate banks for providing more attractive rewards (e.g., miles).
• Online or offline transaction: Compared to physical checkouts, online or “card-not-present” transactions have larger fees due to the higher fraud risk.

They’re also just one of many fees that a merchant has to fork out before they can accept card payments.

To process card transactions, merchants pay their banks (“acquiring banks”) what’s known as a merchant discount rate (MDR). Interchange fees are just one component – albeit a significant part – of the MDR, and these are set by payment networks.

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