Interchange is a small amount that the acquiring bank needs to pay to the issuing bank (that which issued the card ) to make up for the costs and risks the latter undertakes during the transaction. The idea behind charging an interchange is to promote an even balance of costs in the entire system to foster a transparent and mutually beneficial payment industry.
As per visa “the primary role of interchange is to create an equitable balance of incentives between a cardholder’s financial institution — which issues Visa cards to consumers — and a retailer’s financial institution that enrolls retailers and processes Visa transactions for them.”
Merchants can gain security, fraud protection, etc. by paying this small amount or (interchange). Also, in most of the transactions, the costs are reduced without affecting the quickness during the processing. Therefore, this is one of the safest transfer of money because it does not involve multiple times verifying and processing. If there were no interchange fees, cardholders would have to pay a higher fees, either in the form of bank commission or to the retail merchant. Since merchants would then need to cover the costs of the transactions, the quality and speed of transactions would suffer and would be less safe.
The cost of interchange varies from card to card. Like a debit card will has a low risk involved so the costs will be low. On the other hand, government, corporate and foreign credit cards are riskier. So they charge high interchange rates to compensate for the costs involved. It is assumed that Mastercard collects tons of dollars as interchange fees every year. The fact, however, is that Mastercard passes the amount from merchant’s banking institution to the card-issuing bank so that the latter may utilize the inflowing revenue to deliver quicker and secure transactions.
What’s in it for Customers?
At a wide range of locations where transporting cash wouldn’t work, cheques might not help, a MasterCard will suit your purpose. Having a card while shopping helps in transcending geographical and political boundaries. A person from Bangkok can do some online shopping from a retail merchant in Chicago without undergoing any trouble.
The popularity of electronic payment through standard gateways is because consumers enjoy a lot of many benefits without paying the interchange fees directly.
Secure and efficient transaction is the new Normal. Regardless of where you are, you can use your card to make a payment online, or can swipe it in an ATM to draw cash within a fraction of the time. Plastic money, as it is famously called, is convenient to use and more secure against theft or another form of crimes. What’s more is that with MasterCard’s zero liability plans for unauthorized use, customers will not be held responsible for any transaction made once they can report their card to be missing or stolen.
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