Datasheet

12 Part I  Overview of Commerce

Credit card schemes operate based on a ﬁnancial structure called the interchange

rate. In layman’s terms, the interchange rate is the cost of transferring money

between the acquirer and the issuer. Interchange was originally intended to

reimburse the issuers for some of their operational costs, and therefore is explicit

revenue for the card issuers. As such, the interchange rate, although set by the

card schemes, is not a revenue source for them. Interchange rates change periodi-

cally to adjust for the economic state of the regions where the networks operate.

Furthermore, different types of transactions have different interchange rates; the

motivation for this is to strike a balance between merchant acceptance and issuer

incentives. These rates are approved by the respective scheme boards.

The process through which the rates are evaluated and decided is highly

secretive; even the acquirers don’t know the ﬁnal rates and how they’re calcu-

lated until the results are formally announced. Interchange rates are formally

announced twice a year: in April and October. Figure 1-4 illustrates some of the

factors that are known to impact the interchange rate calculation.

Merchant Country

Seller Business Address

Card Type

Visa, MasterCard

Amex, Discover

Switch Solo

MCC & Eligibiity

Airlines, Retail,

Recurring;

Registration

Ticket Size

Micro, Large

Program Type

Consumer vs. Commercial

Debit vs. Credit

Reward

Security

AVS

CVV2/CVC2

Signature

3DS

Txn Performance

Speed of auth/settle

Amt Tolerance

Buyer Country

(Card Billing Address)

Distribution Channel

Point of Sale, Web

Determines

Interchange Rate