Loyalty glossary · 12. Commercial and partner (15)
Interchange
Interchange is the fee paid by a merchant's bank to a cardholder's bank on each card transaction, set by the card network. For loyalty programmes, interchange is the primary funding source for points or miles issued on co-branded cards.
Interchange is set by card networks, not by the loyalty programme that relies on it. A programme can negotiate with an issuing bank. The network published schedule governs the fee on every transaction. That schedule changes without the programme having any say.
The fee is not one number. It varies by card product, merchant category, and region. A premium card earns a higher interchange than a standard card. That is why premium cards can justify richer earn rates. The programme does not control that variance. It cannot promise a fixed cost per point.
The trap is treating interchange as a stable funding source. Networks revise interchange schedules regularly. A cut of even 1 percent of the fee flows directly into the programme point liability. Members earn the same points. The programme has less money to pay for them.
Work the arithmetic. The argument needs to be concrete. A 100 dollar purchase on a co-branded card earns 100 points at 1 point per dollar. Interchange at 1.5 percent yields 1.5 dollars to the issuer. Each point costs the programme 0.5 cents. The 100 points cost 50 cents. Interchange covers that cost. It leaves 1 dollar for the issuer before any other programme costs.
A loyalty programme that cannot state its interchange dependency has not priced its earn rates honestly. The programme should disclose the assumption. It should not pretend the funding is invisible.