How to Record Interchange and Scheme Fee Expenses (COGS)
Accounting for the 'Cost of Sales' paid to issuing banks (Interchange) and card networks (Scheme Fees) for every transaction processed.
| Account Name | Type | Debit ($) | Credit ($) |
|---|---|---|---|
| Cost of Sales - Interchange Fees | Expense (+) | 180.00 | - |
| Cost of Sales - Scheme Fees (Visa/MC) | Expense (+) | 20.00 | - |
| Accrued Network Liabilities | Liability (+) | - | 200.00 |
💡 Accountant's Note
Of the $300 fee the processor kept in the previous entry, the majority is not profit. They must pay the 'Issuing Bank' (the bank that gave the consumer the card) an Interchange Fee and the 'Network' (Visa/MC) a Scheme Fee. These are the primary direct costs of a FinTech and must be accrued in the same period as the transaction revenue to ensure accurate gross margins.
Practitioner & Systems Framework
💻 ERP Architecture
Since networks often bill in arrears, the FinTech must use a 'Cost Engine' to estimate these fees in real-time based on card type (Credit vs Debit) and region (Domestic vs International).
⚠️ Audit Flags
Margin compression. If revenue grows but gross margin drops, auditors will look for 'Scheme Fee Creep' where networks increased rates but the FinTech failed to pass those costs to the merchant.
📄 Required Documentation
Visa/Mastercard Fee Schedules, monthly Network Invoices, and the 'Interchange-Plus' cost calculation model.
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Expert Analysis by Qusai Ahmad
General Accountant Supervisor & IFRS Specialist
Specialized in SAP GUI automation and Middle Eastern tax compliance. Building digital tools for the next generation of finance leaders.
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