Who pays the interchange fee?

Interchange fees are a crucial aspect of the financial transaction system, particularly in the realm of credit and debit card purchases. These fees are incurred by the merchant's bank whenever a customer utilizes their card to make a purchase at the merchant's store.

The primary purpose of interchange fees is to compensate the card-issuing bank for various expenses incurred during the transaction process. These expenses encompass handling costs, which involve the verification and authorization of the payment, as well as the potential risks associated with fraud and bad debt.

By compensating the card-issuing bank, interchange fees ensure that these institutions are incentivized to continue offering credit and debit card services to their customers. This, in turn, facilitates a seamless and convenient payment experience for both merchants and customers.

The amount of interchange fees charged can vary depending on several factors, including the type of card being used, the size of the transaction, and the merchant's industry. For instance, some cards may have higher fees due to their added benefits or rewards programs.

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