Reducing Interchange Fees with OTC Liquidity

Card interchange fees are a major cost burden for merchants, payment processors, and businesses handling high volumes of card transactions. As traditional payment networks continue to charge fees for processing credit and debit card transactions, many businesses are exploring alternative payment methods to lower these costs. One solution that is gaining traction is OTC liquidity, particularly in the form of crypto settlements that bypass the need for card networks entirely.

In this guide, we’ll explore how OTC liquidity solutions can help payment processors reduce card interchange fees, improve transaction efficiency, and navigate the challenges posed by traditional payment infrastructure.

Key Point Summary

• Understanding Interchange Fees in Traditional Payments by Credit Card Companies
• The Hidden Costs of Higher Interchange Fees
• How OTC Liquidity Reduces Interchange Fees
• Comparing Traditional Interchange Fees by Credit Card Payment Networks vs. OTC Crypto Liquidity
• How FinchTrade Helps Payment Processors Reduce Costs
• The Future of Payment Processing: Moving Beyond Interchange Fees

Understanding Interchange Fees in Traditional Payments by Credit Card Companies

Credit card interchange fees are charges imposed by credit card companies and issuing banks for processing credit and debit card transactions. These fees apply to merchants every time a customer uses a credit or debit card, contributing to the overall cost of transaction processing.

What are Interchange Fees?

Interchange fees are a type of fee paid by merchants to accept credit and debit card payments. These fees are typically a percentage of the transaction amount, plus a flat fee, and are used to fund rewards programs and other benefits offered by credit card companies. Interchange fees are set by payment networks, such as Visa and Mastercard, and can vary depending on the type of card used, the transaction method, and the merchant’s industry.

How Interchange Fees Work

• Every time a card transaction occurs, a percentage of the transaction value is deducted as an interchange fee that the merchant pays.

• These fees are shared between the card issuing bank, acquiring bank, and payment networks like Visa and Mastercard.

• The interchange fee varies based on factors like transaction method (card-present or card-not-present), card type, industry, and risk level.

Types of Card Transactions

There are two main types of card transactions: card present transactions and card not present transactions.

Card Present Transactions

Card present transactions occur when a customer is physically present at the point of sale and uses their credit or debit card to make a purchase. This type of transaction typically has a lower interchange fee than card not present transactions, as the risk of fraud is lower.

Card Not Present Transactions

Card not present transactions occur when a customer is not physically present at the point of sale, such as when making an online or phone purchase. This type of transaction typically has a higher interchange fee than card present transactions, as the risk of fraud is higher.

Interchange Fee Pricing Models

There are several interchange fee pricing models used by payment processors to bill merchants for interchange fees. These models include:

• Interchange Plus Pricing: This model charges merchants a fixed markup above the interchange fee, plus a small transaction fee.

• Tiered Pricing: This model charges merchants a fixed rate for each transaction, based on the type of card used and the transaction method.

• Flat-Rate Pricing: This model charges merchants a single, flat rate for all transactions, regardless of the type of card used or the transaction method.

• Subscription/Membership Pricing: This model charges merchants a monthly or annual fee, plus a small transaction fee, for access to payment processing services.

It’s worth noting that interchange fees can have a significant impact on a merchant’s bottom line, and understanding the different pricing models can help merchants make informed decisions about their payment processing needs.

Key Factors Affecting Debit Card Interchange Fees

1. Card Type – Credit cards generally have higher interchange fees than debit cards because of the added risk for the issuer.

2. Transaction Type – Card-not-present transactions (e.g., e-commerce) carry higher fees than card-present transactions due to increased fraud risk.

3. Merchant Category Code (MCC) – Different industries have different interchange rates based on risk profiles.

4. Cross-Border Transactions – International payments tend to have higher fees because of currency conversion and additional regulatory requirements.

5. Rewards Cards – Cards that offer customer rewards tend to charge merchants higher interchange fees.

For payment processors, these fees add up, affecting profitability and making it challenging to offer competitive rates to merchants. The average interchange fee typically ranges between 1.5 percent and 3.5 percent, influenced by factors such as the type of credit card used and whether the purchase is made online or in-person.

The Hidden Costs of Higher Interchange Fees

For businesses processing large transaction volumes, higher interchange fees and swipe fees can have a significant financial impact. Below are some hidden costs that come with traditional card processing:

1. Transaction Volume Costs

• Businesses that process a high volume of credit card transactions can end up paying millions in annual interchange fees.

2. Cross-Border Transaction Fees

• Cross-border transactions tend to have higher interchange fees due to foreign exchange conversion and regulatory complexities.

3. Chargebacks and Fraudulent Transactions

• Fraud risk increases processing fees, especially for card-not-present transactions (e.g., e-commerce purchases).

4. Lack of Transparency

• The structure of interchange rates is often opaque, making it difficult for merchants to predict costs accurately.

Given these challenges, businesses are seeking alternative methods to lower transaction fees while maintaining seamless payment processing.

How OTC Liquidity Reduces Interchange Fees

With the rise of crypto liquidity solutions, businesses can bypass traditional payment rails and lower transaction costs. OTC (Over-the-Counter) trading desks offer direct settlements in stablecoins like USDT and USDC, eliminating the need for credit card payment networks and their associated fees.

Key Benefits of Using OTC Liquidity for Payment Processing

1. Lower Transaction Fees

• Unlike credit card payments that come with interchange fees and merchant service fees, crypto transactions via OTC desks often have fixed or low percentage fees that significantly reduce costs.

2. Elimination of Card Networks

• By settling transactions in stablecoins or crypto, payment processors can avoid card networks entirely, removing the need to pay Visa, Mastercard, or issuing banks.

3. Faster Cross-Border Settlements

• Traditional SWIFT transfers and card transactions take days to clear, while OTC crypto settlements can be completed in minutes or hours.

4. Increased Transparency in Fees

• Interchange fees are complex and difficult to predict, whereas OTC liquidity services provide transparent pricing based on the market rate of stablecoins and transaction volume.

5. Minimized Fraud and Chargebacks

• Crypto transactions are final, eliminating the risk of fraudulent chargebacks, a common issue with credit card transactions.

6. Support for Cross-Border Payments

• OTC desks facilitate cross-border transactions without the high fees and currency conversion costs associated with traditional card payments.

Comparing Traditional Interchange Fees by Credit Card Payment Networks vs. OTC Crypto Liquidity

How FinchTrade Helps Payment Processors Reduce Costs

As a leading OTC liquidity provider, FinchTrade enables payment processors to reduce costs by optimizing the volume of transactions processed through stablecoin settlements as a cost-effective alternative to traditional card payments.

FinchTrade’s Crypto Liquidity Solutions for Payment Processors

1. Deep Liquidity Pools – Ensuring large transaction settlements without price slippage.

2. Competitive Pricing – Lower fees than traditional credit card interchange rates, which are determined by the interchange rate structure involving factors like the type of card and the nature of the transaction.

3. Multi-Currency Support – Facilitating cross-border transactions with minimal conversion costs.

4. Fast Settlements – Transactions completed in minutes instead of days.

5. Regulatory Compliance – Full KYC/AML integration for secure transactions.

The Future of Payment Processing: Moving Beyond Interchange Fees

With crypto adoption on the rise, payment processors that embrace OTC liquidity solutions will gain a competitive edge in cost reduction, efficiency, and transparency. The shift away from credit card networks towards stablecoin-based settlements presents a new opportunity for businesses looking to minimize costs and streamline global transactions.

As financial institutions continue to evolve, integrating crypto liquidity services into payment processing will become essential. Whether businesses seek lower interchange fees, faster settlements, or greater transparency, moving away from traditional credit card company models, OTC crypto liquidity offers a practical and scalable solution.

Conclusion

Interchange fees remain a major expense that merchants pay, particularly for high-volume merchants and cross-border transactions. By leveraging OTC liquidity, businesses can reduce reliance on credit card networks, minimize transaction costs, and accelerate settlements.

FinchTrade provides OTC liquidity solutions tailored for payment processors, enabling seamless crypto settlements at lower costs. As the payments industry shifts towards digital assets, integrating crypto-based solutions will be crucial for businesses looking to remain competitive and cost-efficient.

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