Maximizing Interchange Guide | Card Issuing | Fintech | Lithic

Guide to Maximizing Interchange Revenue

November 17, 2022

Eduardo Lopez
Product Marketing Lead

Table of Contents
6 principles about interchange revenue
Card program types and interchange fees
Additional resources

In our first Interchange Guide, we explained the basics of interchange fees, how interchange works, how it’s shared between all of the participants in a transaction, and the main factors that impact your interchange take rate.

We found a number of pieces written on this topic, but they were all geared to community banks and credit unions. In this guide, we’ll provide actionable tips that fintech founders and operators can use to maximize their interchange revenue.

This guide covers:

Disclaimer: Under no circumstances should you misrepresent your program. While there may be legitimate reasons to structure a card program so it can generate higher interchange, misrepresenting your business can get you in serious trouble with the card networks and even result in being dropped by your sponsor bank.

6 principles about interchange revenue

In general, interchange rates are paid to the issuer to offset their risk. How these rates are set can seem like more of an art than a science. Card networks have to balance the benefits and costs between issuers, cardholders, and merchants.

If rates are set too high, merchant acceptance drops and your cards will be accepted at fewer locations. If they’re set too low, the issuer or fintech may not want to issue and promote cards on their network, in turn impacting consumer demand for cards. Interchange also funds benefits for consumers and businesses that are less immediately tangible, like fraud protections. Setting rates too low could mean networks can't fund those benefits.

While your interchange rate will vary depending on several factors and what behaviors the card network is trying to promote, there are a few principles you can use to help you navigate what affects interchange.

  1. Commercial is generally higher than consumer: Commercial cards earn higher interchange than consumer cards, and commercial prepaid BINs have the highest interchange.
  2. Small is generally higher than large: Transactions at small merchants generate higher interchange revenue than with large merchants like Amazon, Sam’s Club, and Walmart because the large vendors often negotiate lower interchange rates with the card networks.
  3. Credit is generally higher than debit: Debit BINs offer lower interchange than credit BINs because the funds are verified immediately, so there is less risk.
  4. Online is generally higher than in-person: Card-not-present (CNP) transactions generate higher interchange than card present transactions because the risk of fraud is lower when the customer’s card is present.
  5. Prepaid is generally higher than debit: In most cases, prepaid rates will meet or exceed debit interchange rates due to the likelihood of fraud.
  6. More transaction data generates lower interchange: The more transaction data you collect, the lower your interchange take rate.

Card program types and interchange fees

In this section, we’ll explore four types of card programs (from highest to lowest interchange) and how to maximize interchange for each program.

Prepaid cards

Overview

Charge cards

Overview

Credit cards

Overview

Debit cards

Overview

Additional resources