Interchange Fee

Say you pay 5,000 won by card at a cafe. The full 5,000 won doesn't land in the store's bank account. The amount left after a fee is taken arrives a few days later. That unseen deduction is called the merchant fee.

The money doesn't go to just one place. It's shared among the company that signed up the store and processes the payment, the company that issued the card to the customer, and the card network linking the two. The part that goes to the issuer's side is the interchange fee.

So the two terms don't mean the same thing. The merchant fee is the total the store pays. The interchange fee is one slice of it, passed to the card issuer. It's easy to assume the card network keeps that money. But card networks state that they only set the default rate used when no separate agreement exists, and that they don't receive the money themselves.

Using a card earns you points and miles. Yet it doesn't seem like cardholders pay anything separate for them. A large part of the funding comes from that slice we just saw.

The scale shows up in the card market reports the U.S. Consumer Financial Protection Bureau sends to Congress. For general-purpose cards from large U.S. banks, a big share of interchange income is counted as flowing back out as points, miles, and cash back. That share differs by the group counted and by year. In other countries, or with other card types, the structure changes.

So the chain runs like this. Money the store paid flows through the card issuer and out as perks for cardholders. Stores are known to add that cost to their prices. Then customers who don't use cards end up paying the same prices. When one side's payments cut the price for the other side, that's called a cross-subsidy.

A rate isn't one number. It's a whole table. Brackets are split finely by type of business, type of card, and payment method. Even for that one coffee, the bracket that applies changes depending on whether you swipe at a cafe or a convenience store.

It differs by country too. In some places a regulator sets a cap. In others, the default rate set by the card network is used as is. Korea has a somewhat different flavor. The company that issues the card and the company that manages the merchant are often the same one. So the scene of this share crossing between companies stands out less than it does in the U.S. or Europe.

Instead, Korea regulates the side the store pays, by law. Korea's Specialized Credit Finance Business Act requires card companies to set merchant fee rates fairly and reasonably. Under the rules beneath it, card companies may reflect only the costs that are fair for merchants to bear. Industry and supervisors call these "qualifying costs". There's an exception. Small and medium-sized merchants below a size set by presidential decree must get the preferential fee rate set by Korea's Financial Services Commission.