Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Interchange

What it is:

Without interchanges, there would be no electronic banking. The advent of the Internet has increased its use and prevalence, and card issuers get a considerable portion of their revenues from interchange fees.

How it works (Example):

Banks are common users of interchange data because they issue credit cards and debit cards. When a customer uses his or her credit or debit card, information about the purchase is transmitted through an electronic data interchange (called an EDI) that exists between retailers and banks. This interchange activity is necessary for retailers to receive payment for the sale of goods and services, but it is not free. Banks usually charge an interchange fee, which is usually a combination of a percentage of the transaction size (around 2%-3%, depending on the card issuer and the size of the transaction) plus a flat fee.

Why it Matters:

An interchange is an electronic transfer of information. In the business world, this usually involves financial data.