Exchange rate in credit cards: How it works and influences customers

If you are a credit card user, you would have encountered a number of terms that explain the different costs, financial parameters and key statistics associated with it. But do you know what an exchange rate is? The exchange rate fee is probably the most important element in the world of credit cards and keeps the cycle of financing the purchases that are uninterrupted. Each time you use a credit card to make a purchase, the trader’s bank account is charged an exchange rate. The Merchant’s Bank (Acquiring Bank) recovers it from the trader over time after giving some discounts. “Interchange is a minor fee paid by a merchant bank (acquirer) to a cardholder’s bank (issuer) to compensate the issuer for the value and benefits that traders receive when accepting electronic payments,” according to MasterCard, the Global Pove Card Services Behemoth. Here is a exchange rate manual and how it affects credit card payments: how much is the exchange rate for credit cards, and what factors determine the fee? Exchange fee, which is paid between banks for map -based transactions, covers the cost of the card holder bank (issuer) related to credit lines and fraud reduction. Credit cards usually have an exchange rate fee of 2% of the transaction amount, while it is only 0.3% for debit cards in India. The exchange rate fee is only 0.3% -0.5% of the transaction value in most advanced economies, including the European Union (EU) and Australia. The exchange rate fee is determined by a number of factors, including the type of card (credit or debit), the type and size of the trader, the type of transaction (online or physical), and the area where the card is in use. This fee helps banks cover the costs associated with the maintenance of the payment network infrastructure, manage the risks associated with payments processing and to finance customer rewards programs. How is the exchange rate calculated, and who pays the fee? An exchange fee is usually a percentage of the card transaction amount. For example, if you buy something worth £ 10000 and the exchange rate for the transaction is 2%, the trader will not get the total amount. In the above case, the trader gets £ 9800 of the sale (after the £ 200 rap). The exchange rate fee of £ 200 will be shared by the map that the bank release, the payment network (Rupay, MasterCard, Visa, etc.), the Merchant’s Bank (Accineing Bank), The Post (Point of Sale) or the Payment Gate Provider (Razorpay, Pinelabs, etc. result of the interim. credit and undertake the risk of raising the money from the client. Traders pay the exchange rate to their procurement bank, which is then passed on to the card -reaching bank. They usually negotiate a ‘trader discount’ with their bank that includes the exchange fee and processing costs. In this way, the initial discount of 2% will drop for the dealer with his/her bank (bank on the bank) who bears some of the costs. But why should traders pay? Most traders choose to pay the exchange rate as it offers them a significant business opportunity after giving a small discount. But some traders only accept debit cards as the exchange rate is low for them. Some traders give the exchange rate in credit cards to the customer by adding it to the final account. Do the exchange rates vary? The exchange rate varies between transactions. Banks that reach out charge an exchange rate fee based on the MCC (category code). MCC reflects the value of the risk and the average transaction size of the business. MCC determines the percentage of MDR (trader discount) in a transaction. A lower MDR is charged for transactions in certain MCCs, which are considered low-risk businesses. For example, groceries and aid programs are routine, low-risk categories that attract a lower MDR of 1% -1.5% (depending on the bank and the payment gate). The exchange rate also varies over credit cards. Credit cards that offer high benefits usually have a higher exchange rate than standard cards. This fee is often used to finance the reward program. Map Current Transactions, in which the cardholder provides the card for use at the post, also has a lower exchange rate compared to transactions done online or via cell phones. This is because online and mobile-based transactions pose a much greater risk of fraud and data errors. How about the exchange rate for UPI transactions? UPI (Unified Payments Interface) transactions have grown with jump and limits over the past few years. They are now responsible for a vast majority of digital transactions and have emerged as a preferred mode for payments. UPI transactions are not attracting MDR at the moment. If a person (consumer) uses a payment from their bank account to the trader’s bank account using UPI, no cost is charged for both parties. But by trading PPIs (prepaid payment instruments), enabling you to do digital UPI transactions without using your bank account, attract an exchange rate of about 0.5% -1% of the transaction amount. PPIs (Phonepe wallets, Amazon Pay, etc.) store money in a digital wallet and are used with other pay modes for UPI transactions. Allirajan M is a journalist with more than two decades of experience. He works with various leading media organizations in the country and has been writing mutual funds for almost 16 years. Visit here for all personal finance updates.