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Interchange, Part 1: The Anatomy of a Guest Payment

Payment ProcessingInterchange

In the world of payments, interchange (the fee paid to the financial institution that issued your guest’s credit or debit card) is a complex subject matter.  In this blog series, we’ll dig into the topic of interchange – including how it impacts the lodging and short-term rental manager’s bottom line.Guest Booking

Before we dive into the interchange deep end, Part 1 of this series will cover the basics of how data and money moves through the system when credit card payments are taken in the vacation rental and lodging industry.

This blog assumes you already know the benefits of driving potential guests directly to your website or reservationists so you can take advantage of the many benefits of accepting direct bookings.

Your guest has found the perfect rental property and they are paying by credit or debit card?  Let us begin:

Authorization Transmission

Once you (or your guest) click the “book now” button, the transaction data (including card number, expiration date, cardholder address, security code, total booking amount, and sometimes folio number and dates of stay) is securely transmitted through the payment gateway to an authorization network.  This third-party business uses a complex communication grid to forward the request to the bank that issued your guest’s credit card.  The issuing bank will issue an authorization (indicating that the cardholder has credit available on the account) or a decline (indicating the cardholder has reached their credit limit or their bank is otherwise not able to issue credit to the cardholder).  

The response is virtually instantaneous and sometimes includes information passed back to your gateway about why a decline might have occurred (insufficient funds, suspected fraud, invalid card, etc.). If the payment authorization was successful, an authorization code (normally a six-character code made up of numbers and letters) is issued and recorded, and the booking moves on to the next step.


Once per day, usually midnight, your payment gateway gathers all the day’s successful authorizations together and transmits them in a “batch” format to your merchant processing bank (often called your acquiring bank). The acquiring bank is the bank representing you in Banking Settlementthe process of getting funds moved from your guest to your bank account through the credit card payment process.  

The acquiring bank sorts all your transactions by card issuer (e.g., Wells Fargo, Bank of America, Capital One, etc.) and sends financial files to each bank, requesting payment for each transaction. Thousands of issuers around the world are part of this network, which handles complex reporting, verification, and payment transmissions on hundreds of millions of transactions each day. 

The acquiring bank then initiates an ACH payment to your local deposit bank account, which includes the net sum of all your transactions in a particular batch, ensuring that you are paid correctly for each of your bookings.

Congratulations, you got paid! Now what?

Part 2 of this series reviews the different fees you may see on a payment processor’s merchant statement, what you’re paying for with each fee, and where the fees ultimately go. 


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