The debate over interchange fees
Every time a consumer uses a debit card, a series of payment decisions happens behind the scenes. One of the most important is how the transaction is routed — and how much it costs. At the center of that process are interchange fees.
Interchange fees are paid by merchants to card-issuing financial institutions on debit card transactions. The amount can vary based on several factors, including whether the transaction is card present or card not present, the merchant’s industry and the region where the transaction occurs.
Debit card networks set these fees, which may be a fixed amount, a variable amount or a combination of both. Interchange helps cover the issuing financial institution’s costs and risks associated with debit card transactions. But for merchants, interchange is an operating expense — one they often want to reduce.
That tension has made interchange a long-standing point of debate between merchants and card issuers. Merchants want the ability to route transactions to the lowest-cost network, while financial institutions rely on interchange income to support secure, reliable debit card programs for their accountholders.
Why routing matters
For merchants, routing choice can have a direct impact on cost. The fees and expenses associated with different debit networks are often a key factor when deciding how to route a transaction.
The goal for many merchants — and their payment processors — is simple: Route transactions through the most cost-effective network available. Networks with lower interchange fees and processing charges can be especially attractive to merchants with high transaction volumes, where even small differences in cost can add up quickly.
But the lowest-cost route for the merchant is not always the best outcome for the card-issuing financial institution. For issuers, debit interchange helps support the technology, security, fraud prevention and operational resources needed to keep card programs running smoothly.
That’s why routing choice is more than a back-office payment decision. It can directly affect a financial institution’s debit card revenue and overall payments strategy.
How volume deals affect competition
Large debit networks with significant market share often have pricing power. They can use their scale to offer volume-based discounts that encourage large merchants to route more transactions through their networks. For merchants, these arrangements may lower costs. For the broader payments ecosystem, however, they can create challenges.
A high-volume, low-margin approach can make it harder for smaller networks to compete. It also can set a lower-fee benchmark that other networks are pressured to match, even if their operating models, issuer support or network economics are different.
Over time, these dynamics can influence how transactions are routed, how competition develops and how much interchange income financial institutions are able to earn.
Choosing the right debit card network
So, what can financial institutions do to protect and maximize interchange income? It starts with choosing the right second network — one that puts financial institutions first.
Interchange income and expenses can vary greatly between global and U.S. debit networks. Some networks charge higher issuer fees that can reduce the net interchange a financial institution receives. SHAZAM takes a different approach by considering the full range of rates and fees to help strengthen a financial institution’s net income.
Our payments network is intentionally structured to support stronger net interchange for financial institutions.
It’s also important for financial institutions to understand how and where cardholders are using their debit cards. While financial institutions do not directly control the interchange paid on each transaction, they can make more informed decisions by evaluating card usage patterns.
For example:
- Which transaction type pays higher interchange — dual message or single message?
- Which transaction type offers stronger security?
- Where could better routing insights help reduce expenses or fraud loss?
Understanding these details can help financial institutions make smarter decisions about their debit card programs and better navigate the evolving interchange landscape.
SHAZAM is dedicated to helping financial institutions understand the factors that affect interchange income. Contact us to learn how SHAZAM helps financial institutions earn more from their debit card programs.
SHAZAM, Inc., and ITS, Inc., provide this blog for general informational purposes only. The blog may be shared via direct link, provided the content remains unchanged and is presented as originally published. SHAZAM, Inc., and ITS, Inc., assume no responsibility for errors or omissions. By using this blog, readers acknowledge that the information provided does not constitute legal advice and is not a substitute for advice from a qualified, licensed attorney.