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June 24, 2022
by David Goodale

What is Interchange Optimization?

(Edited from video transcript)

Hello, David here at Today I'm going to tackle a kind of complicated topic, but I'm going to make it simple. That topic is: What is interchange optimization? Stay tuned, I'm going to discuss it in a moment.

Interchange Optimization

To answer this question, you must know what interchange is. We have other content on about this, but here we'll address it at a very high level. Every time a merchant processes a transaction, you as a business owner pay a fee to your payment processor called the discount rate. From that percentage-based transaction fee, the payment processor doesn't get to keep all of it. They incur a cost from Visa and MasterCard. That cost is called interchange. Interchange is the cost directly from Visa and MasterCard to the payment processor. It is set at a country level. There's a Canadian interchange that all Canadian merchants pay, there's a US interchange that US merchants pay. There is a European interchange that European-based businesses pay and then a UK interchange and so forth. To summarize: Interchange is a percentage-based fee paid to Visa and Mastercard, by the payment processor, for each transaction that is processed. The interchange cost structure itself is set at a country level. Interchange optimization is the process of routing credit card payment transactions in such a way as to reduce the total amount of interchange fees.

How to benefit from Interchange Optimization

To experience the maximum benefit from Interchange Optimisation you need to be have interchange plus pricing also known as cost plus pricing. This will allow any reduction in cost experienced by the payment processor to be passed on to you.

Interchange costs vary by Country. The purpose of Interchange Optimization is to lower your costs. For example, Europe has a lot lower interchange costs than North America. If you own a business that has customers in different countries you might do: 10% of your sales to Canada, 50% of your sales to the US, 30% throughout Europe, and 10% in the UK. What we'll think about is what you could do as a business if you honestly wanted to reduce those costs. One option could be to get a domestic merchant account in each of those countries because when your transactions cross a border, you pay an extra higher interchange cost in North America. It's called a cross-border fee and there's a different term for it in some different regions. The takeaway is: If your transaction crosses a border your costs go up.

For example, in Europe, a European-based merchant selling to a European card holder has a maximum interchange cost for that transaction of 0.3%. That is about five times lower than the lowest interchange rate in Canada. Not quite but almost. If you have a lot of European businesses, it would make sense to run your European sales through a European merchant account if you had a European business presence.

Interchange Consulting

At, we do a lot of what we do interchange consulting. If we have a potential client, we'll ask where do you have a business that's already registered? Let's assume you're doing a million dollars a month of sales in Europe. We'll ask why don't you incorporate in Ireland or somewhere so that we can get you a domestic European merchant account. There are other benefits to it as well beyond the scope of this article.

Expanding on the European merchant example, if you got a domestic European merchant account, you could process and receive your money in euros without any currency conversion to you or your customers. There's a big benefit to that. Some of these cost savings can be very significant. It's hard to drill into interchange in every region and how it might apply to your business, each business case is unique. A good point of reference is a million dollars a month in sales. You might benefit from interchange optimization, especially If you already have a corporate presence in some other countries where you have customers, but you don't yet have a merchant account there. If you do, I encourage you to talk to us at at least to seek out a quote.

Something else beyond the scope of this video that I will briefly mention is that at a technical level your website has to be smart enough to determine, if the billing address equals Amsterdam, then route the transaction through the European merchant account. Else if the card holders billing address is Toronto Canadian, then route the payment through our Canadian merchant account. It's not just a backend administrative matter for getting merchant accounts in each region, you have to set up your website in a way to route the transactions intelligently. That's something that we can help you with at as well.


If anybody viewing this wants a more thorough or detailed explanation of interchange optimization please leave a comment or contact us here at I hope I've demystified it a little bit. I hope I've explained the concept of it. Thanks for watching and have a great day. Bye now.

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David Goodale About the Author

My name is David Goodale, CEO at Merchant I launched our business in 2001 and have over 20 years of expertise in the field of online payments. If you have a payments related question or project, and especially if it relates to multi-currency or international e-commerce don't hesitate to contact me. I'm always happy to help with an honest opinion, and enjoy chatting with folks from interesting businesses.

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