Optimizing Payment Processing Costs: The Role of OTC Liquidity in Managing Interchange Fees

Interchange fees—those often-overlooked costs tied to credit and debit card transactions—can have a significant impact on a payment processor’s bottom line. The average interchange fee typically ranges from 1.5 to 3.5 percent of the total transaction value. As transaction volumes rise and the global payments ecosystem evolves, managing these fees becomes increasingly critical. While much of the discourse focuses on traditional banking models and card networks, an emerging and powerful solution lies in leveraging Over-the-Counter (OTC) crypto liquidity services.

In this article, we explore the structure and implications of interchange fees, the challenges they present for payment processors, and how OTC desks offering crypto liquidity—like FinchTrade—can help mitigate these costs through strategic use of stablecoins and crypto-fiat rails.

Key Point Summary

• What Are Interchange Fees?
• Types of Interchange Fees
• Interchange Fee Pricing Models
• The Challenge for Payment Processors and Credit Card Companies
• Factors Affecting Interchange Fees
• Why FinchTrade?
• Regulatory Perspective
• Use Case: Crypto Rails vs Credit Card Payment Networks
• Future Outlook

What Are Interchange Fees?

Interchange fees are transaction fees that merchants pay to card-issuing banks every time a customer uses a credit card or debit card for a purchase. The card issuing bank deducts interchange fees when paying the acquiring bank, which ultimately affects the amount the merchant receives. These fees are set by credit card companies like Visa and Mastercard and are designed to cover risks such as fraudulent transactions, operational costs, and payment guarantee.

Merchants incur interchange fees whenever they process credit or debit card payments. This impacts their pricing and business decisions, as they need to account for these costs in their financial planning.

They typically consist of:

• A flat fee (e.g., $0.10 per transaction)

• A percentage of the transaction value (e.g., 1.5%–3.5%)

Interchange rates vary based on:

• Card type (credit card, debit card, prepaid card)

• Transaction method (card present vs. card not present)

• Merchant category code (MCC)

• Transaction volume

In many regions, especially the European Union, regulators have placed caps on interchange fees to promote competition and reduce costs for merchants. However, cross-border transactions and card-not-present transactions (e.g., online purchases) often attract higher interchange fees.

Types of Interchange Fees

Interchange fees can be categorized into two main types: credit card interchange fees and debit card interchange fees. Understanding these distinctions is crucial for merchants aiming to optimize their payment processing costs.

Credit Card Interchange Fees

Credit card interchange fees are charged to merchants for processing credit card transactions. These fees are typically higher than debit card interchange fees, ranging from 1.5% to 3.5% of the transaction amount, plus a flat fee. Credit card interchange fees are used to fund rewards programs, such as cashback, points, and travel miles, offered by credit card companies. This makes credit card transactions more expensive for merchants but attractive to consumers who benefit from these rewards.

Debit Card Interchange Fees

Debit card interchange fees, on the other hand, are charged to merchants for processing debit card transactions. These fees are generally lower than credit card interchange fees and are capped at $0.21 plus 5 basis points times the value of the transaction for issuers with consolidated assets of $10 billion or more. Debit card interchange fees cover the costs of processing debit card transactions, including maintaining the payment network and providing customer support. This makes debit card transactions a more cost-effective option for merchants.

Interchange Fee Pricing Models

Interchange fee pricing models vary depending on the payment processor and the type of card used. There are four main types of pricing models: interchange plus pricing, tiered pricing, flat-rate pricing, and subscription/membership pricing.

• Interchange Plus Pricing: This model charges merchants a percentage of the transaction amount plus a flat fee, which is typically lower than the interchange fee. It offers transparency and can be more cost-effective for merchants with high transaction volumes.

• Tiered Pricing: This model charges merchants a fixed rate for each transaction, based on the type of card used and the merchant’s industry. It simplifies billing but can be more expensive for merchants with diverse transaction types.

• Flat-Rate Pricing: This model charges merchants a fixed rate for each transaction, regardless of the type of card used or the merchant’s industry. It offers predictability but may not be the most cost-effective for all merchants.

• Subscription/Membership Pricing: This model charges merchants a monthly or annual fee for access to payment processing services, rather than a per-transaction fee. It can be beneficial for merchants with high transaction volumes, as it eliminates per-transaction costs.

The Challenge for Payment Processors and Credit Card Companies

Payment processors act as intermediaries between merchants and financial institutions, managing the movement of funds, ensuring card data security, and maintaining relationships with acquiring banks and payment networks. The volume and value of transactions processed by payment processors significantly impact their costs, including interchange fees, processing fees, and network charges. Every transaction processed comes with associated interchange fees, processing fees, and network charges, all of which affect profit margins.

Challenges include:

• Rising Interchange Rates: Especially in the U.S. and Latin America, credit card interchange fees remain high due to lack of regulation and growing reliance on rewards cards.

• Volatility in Fees: Different pricing models, including interchange plus, tiered, and flat-rate pricing, can lead to uncertainty in costs.

• Cross-Border Transaction Fees: International transactions often involve multiple banks and currencies, increasing both exchange rate risk and interchange fees.

• Card-Not-Present Transactions: These carry more fraud risk and higher fees, impacting ecommerce and recurring billing models.

For every purchase transaction, interchange fees are calculated and paid per transaction, regardless of transaction size. The cumulative effect is substantial for high-volume processors.

Factors Affecting Interchange Fees

Interchange fees are influenced by several factors, including the type of card used, the transaction method, the merchant’s industry, and the region where the transaction occurs.

Card Present vs. Card Not Present Transactions

Card present transactions, where the card is physically present at the point of sale, typically have lower interchange fees than card not present transactions, where the card is not physically present, such as online or phone orders. This is because card present transactions are considered lower risk, as the cardholder is physically present and can verify the transaction.

In addition, card not present transactions may have higher interchange fees due to the increased risk of fraud and chargebacks. Merchants may also be charged higher interchange fees for card not present transactions if they do not use secure payment processing methods, such as tokenization or encryption.

Overall, understanding the types of interchange fees, pricing models, and factors that affect interchange fees can help merchants make informed decisions about their payment processing options and reduce their costs.

How OTC Desks Help Mitigate Interchange Costs

Enter OTC crypto desks—specialized platforms that offer deep liquidity in digital assets and stablecoins, allowing payment processors to optimize transaction flows, particularly in cross-border and high-volume use cases.

1. Using Stablecoins to Bypass Card Networks

Instead of routing funds through credit card payment networks, payment processors can:

• Accept crypto payments

• Convert those assets through an OTC desk

• Settle in local fiat currencies or USD

This bypasses the interchange fee structure entirely and reduces reliance on card issuing banks, cardholder's banks, and other intermediaries.

2. Streamlining Cross-Border Debit Card Transactions

OTC desks allow for faster settlement, reducing dependence on SWIFT and correspondent banking infrastructure. Payment processors can:

• Avoid high cross-border interchange fees

• Settle directly in local currencies

• Improve transaction speed and transparency

This also mitigates the FX markup often built into interchange rates for international funds transfers.

3. Enabling High-Volume Payouts with Lower Interchange Rates

Many debit card transactions and credit card transactions carry minimum interchange rates or per transaction fees. By aggregating large vendor or payroll payouts and settling them via OTC stablecoin conversions, payment processors can:

• Reduce per-transaction fees

• Minimize flat fee exposure

• Control total transaction costs

4. Reducing Chargebacks and Fraud

Card present transactions (e.g., in-store) typically carry lower interchange rates due to lower fraud risk. However, online payments (CNP) are more vulnerable. Crypto-based rails minimize fraudulent transactions, improving trust while reducing swipe fees and related merchant service fees.

Why FinchTrade?

As a MiCAR-ready OTC desk, FinchTrade provides crypto liquidity to regulated VASPs, exchanges, and payment processors. Our platform helps clients:

• Access stablecoin liquidity (USDT, USDC) for real-time settlements

• Facilitate vendor payouts, payroll, or merchant disbursements

• Maintain low slippage, competitive spreads, and regulatory compliance

FinchTrade supports over-the-counter transactions, enabling clients to conduct large trades, match buyers and sellers, and settle trades in a secure, low-fee environment without disrupting market prices.

Regulatory Perspective

While interchange fees are heavily regulated in parts of the world, crypto remains a strategic workaround—not a loophole but a parallel financial system.

• In the EU, the Interchange Fee Regulation (IFR) caps credit card fees at 0.3% and debit card fees at 0.2%, but only for consumer cards issued and acquired within the EU.

• Cross-border business transactions, prepaid cards, and non-EU cards often fall outside this regulation.

• As crypto regulation evolves, including the Markets in Crypto Assets (MiCA) framework, regulated OTC desks like FinchTrade are positioned to fill the compliance gap and offer safe alternatives to traditional rails.

Use Case: Crypto Rails vs Credit Card Payment Networks

Future Outlook

As payment processing evolves, more processors are reevaluating their pricing models and payment options. Interchange fees will likely remain a contentious issue, especially in high-volume, cross-border, or B2B scenarios. Crypto offers a compelling answer—not a replacement, but a complementary liquidity tool.

Trends to Watch

• Adoption of stablecoin settlement

• Integration of crypto wallets with merchant accounts

• Regulated OTC trading becoming part of payment processor toolkits

• Greater institutional participation in crypto-to-fiat payment flows

Conclusion

Interchange fees—whether from credit cards, debit cards, or cross-border transactions—represent a growing cost center for payment processors. By integrating crypto liquidity through OTC desks like FinchTrade, processors can avoid or reduce card interchange fees, optimize settlement flows, increase transparency and speed, lower the cost of cross-border transactions, and enhance compliance in the evolving digital asset landscape.

If your organization is navigating card fees, rising transaction volumes, or cross-border complexity, FinchTrade’s OTC liquidity services provide a tailored, efficient, and compliant alternative. Reach out to our team to explore how you can reduce costs and scale your payment operations globally.

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