Decoding Credit Card Swipe Charges: A Comprehensive Guide (2024)

Posted on Tuesday, March 12th, 2024 | By IndusInd Bank

With the widespread use of credit cards today, it becomes crucial for users to understand all the charges associated with credit cards. One such charge is known as “swipe charge” and you are about to know all about it in this article. In case you still haven’t started swiping with a credit card, you can simply apply for a credit card online and enable the ease of payments they offer.

Important Terminology Related to Credit Card Swipe Charges

Before delving into the nitty-gritty of credit card swipe charges, it makes sense to understand a few terms first.

Payment Gateway: A payment gateway is a kind of mechanism to collect the payment information of the cardholder. In physical stores, the point of sale (POS) terminal is part of the payment gateway, whereas, for online transactions, the checkout portal where the credit card information has to be entered is the payment gateway. The issuing bank’s processor is also part of this payment gateway as it authorises the payment to be made. Thus, the payment gateway is a type of interface that facilitates the exchange of information between the issuing bank and the merchant.

Payment Processor: During a transaction, the merchant contacts the credit card issuing bank through the payment processor, which collects the payment-related information and sends it to the parties concerned.

Credit Card Network: Both the merchants and the issuing banks are part of the credit card network, and the swipe charges are also determined by this network.

Issuing Bank: The bank that issues the credit card to the customer is called the issuing bank. For instance, if you have applied for any of the IndusInd Bank’s Credit Card, then IndusInd Bank is called the issuing bank.

Acquiring Bank: The acquiring bank collects the payment from the customer on behalf of the merchant. This bank is also part of the credit card network.

What is a Credit Card Swipe Fee?

Against the backdrop of the terminologies listed above, card swipe charges are the interchange fees levied when a credit card is presented for payment. Simply put, interchange fees are fees charged for doing business; in banking parlance, it means the fees charged between banks for accepting card-related transactions. These charges are determined by the credit card network. For instance, if you use IndusInd Bank’s Pinnacle World Credit Card, then MasterCard will determine the credit card swipe fees.

What Happens When the Credit Card is Swiped?

These are the steps that play out when the credit card is swiped at the POS terminal:

• When the cardholder swipes his/her card at the POS terminal, the latter has a card reader that reads the credit card information, and the payment gateway collects this information.
• This information is then communicated by the payment gateway to the payment processor.
• In turn, the payment processor transmits this information to the credit card network.
• This information is then received by the issuing bank, which verifies the cardholder’s details and accordingly decides whether the transaction can be authorised or not. Among other things, it checks for sufficient card balance and details of any fraud.
• The credit card network then sends this information across to the payment processor which in turn transmits it to the card reader.

Who Charges and Pays Credit Card Swipe Fees?

Credit card swiping charges in India are typically born by the merchant whenever the customer uses the card for making any payment and are fixed by the credit card network, which includes the issuing bank of the cardholder. Typically, credit card swipe charges come to around 2% of all transactions when the credit card is used at physical stores and around 2.3% to 2.5% for online transactions.

Conclusion

It is always best to be armed with full knowledge when you apply for a credit card online, understanding not only the benefits you can enjoy but also the charges you will be required to pay. This will help you make an informed decision when it comes to maximising the potential of all that a credit card has to offer.

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Disclaimer: The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circ*mstances. Hence, you are advised to consult your financial advisor before making any financial decision. IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for making any financial decisions based on the contents and information.