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What are credit card swipe charges?

Summary: Know about the end-to-end process of credit card payments and the importance of credit card swipe charges.

15 May 2023 by IDFC FIRST Bank

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There are many individuals who use credit cards without understanding their terms, features, etc. This lack of knowledge can get them into financial trouble, resulting in debt and unnecessary penalties. Don't fall into that same trap. It is vital to get to know everything there is to know about credit cards, so you can save money and make the most of them.

While there are many things to know about a credit card, we'll focus on "credit card swipe charges" or simply "swipe fees" in this article. Continue reading to learn more about "swipe machine fees", certain terms, and the entire process for credit card payments.

Credit card swipe charges-related terms

Before getting into credit card swipe charges, let us first understand credit card-related terminologies. Here is a summary of the relevant terms:

1. Payment gateway

A payment gateway relays information between two key stakeholders in a credit card transaction – a payment portal (such as a website to book movie tickets or an e-commerce website) and your bank's processor. It also authorizes responses from the credit card issuing bank to the payment portal. This exchange of information takes place at the payment gateway.

2. Payment processor

The merchant contacts the issuing bank through a payment processor. The payment processor secures payment-related information and transmits it to other parties.

3. Credit card network

Merchants can contact the issuing bank through the credit card network. Credit card swipe charges, too, are set by the credit card network.

4. Issuing bank

The bank that gives you your credit card is called the "issuing bank." For instance, if you get IDFC FIRST Bank’s Millennia credit card, IDFC FIRST Bank will be the issuing bank.

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5. Acquiring bank

The acquiring bank accepts credit card transactions made by you. The acquiring bank is registered with a credit card network and accepts transactions on the network on behalf of the merchant.

Credit card swipe charges are determined by the credit card network consisting of the issuing bank.

What is a credit card swipe fee?

We can now understand "credit card swipe fee" better with a preliminary understanding of the related terms. A credit card swipe fee is also known as an "interchange fee" and is determined by the credit card network.

For instance, if you get IDFC FIRST Bank’s Millennia credit card, Visa will fix credit card swipe charges.

How are we charged when swiping credit cards?

Here is what happens when we swipe our credit card at a Point of Sale (PoS) machine:

· The cardholder swipes their credit card at a PoS terminal. The PoS terminal has a "card reader" that reads credit card information. The merchant uses a payment gateway to collect this information.

· The payment gateway transmits the transaction's information to the payment processor.

· The payment processor relays this information to the credit card network.

· This information is received by the issuing bank, which verifies the card details. The issuing bank informs the credit card network whether it approves or denies a transaction after checking whether the card has the required balance and checking for any fraudulent details.

· The credit card network relays this information to the payment processor, which relays it to the card reader.

Who pays credit card swipe fees?

Credit cardholders must remember that merchants and, sometimes, issuing banks charge credit card swipe fees every time the credit cardholder makes a payment using their credit card. With this final point, let's summarize credit card swipe fees in a few points:

· When you make a credit card transaction, a "credit card swipe fee" is charged by the merchant.

· The credit card swipe fee is determined by the credit card network, consisting of the issuing bank.

· The Reserve Bank of India (RBI) regulates issuing banks' credit card swipe charges.

· Credit card swipe charges amount to approximately 2% of all transactions involving a physical credit card; and 2.3-2.5% of online transactions.

The key to using your credit card effectively is learning everything about the product, including concepts such as swipe charges and other credit card charges. Knowing the details of swipe charges is an important step in understanding the full potential of a credit card, and how it can best be used for your benefit.

Disclaimer

The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.

The features, benefits and offers mentioned in the article are applicable as on the day of publication of this blog and is subject to change without notice. The contents herein are also subject to other product specific terms and conditions and any third party terms and conditions, as applicable. Please refer our website www.idfcfirst.bank.in for latest updates.