What factors impact interchange rates?

The selection of the card type, whether debit or credit, significantly impacts interchange rates due to the differing risk profiles and fee structures associated with each type. Credit cards typically have higher interchange rates because they involve more risk for the issuing bank, including the potential for unpaid debts, and they often come with higher rewards and benefits for the cardholder. This translates to increased costs for merchants who accept credit transactions. On the other hand, debit cards generally incur lower interchange fees since funds are drawn directly from the user's bank account, thus presenting less risk for the issuer.

While other factors like transaction amount, merchant location, and type of product sold also play roles in determining interchange fees, the fundamental distinction between debit and credit cards is a crucial determinant of the rates applied. These rates are at the core of the payment processing ecosystem, influencing both merchant costs and consumer incentives.