Understanding Interchange Fees
If you accept credit and debit cards, interchange is almost certainly the single largest part of what you pay to process each sale. Yet many US business owners have never had it explained clearly. This guide breaks it down in plain English so you can read your statement with confidence.
What is interchange?
Interchange is a fee paid to the bank that issued your customer's card every time that card is used. When a customer taps or swipes at your business, a small percentage of the sale (plus, sometimes, a fixed per-transaction amount) is routed to their issuing bank. This fee compensates the bank for extending credit and taking on fraud risk.
Crucially, interchange is set by the card networks — Visa, Mastercard, Discover, and American Express — not by your payment processor. That means interchange is the same for every business that runs the same type of transaction. No processor can offer you a lower interchange rate; they can only control the markup they add on top.
Why do interchange rates vary?
There isn't one flat interchange rate. Instead, there are hundreds of categories, and the rate for a given transaction depends on several factors:
- Card type: Rewards and business cards usually carry higher interchange than basic debit cards, because they cost the issuing bank more.
- How the card is accepted: A card physically present and dipped into a chip reader is lower risk — and typically lower cost — than a card number typed into a website.
- Your industry: Some merchant categories have special interchange programs.
- Transaction data: Providing more complete data (common in B2B) can qualify some transactions for lower rates.
Interchange vs. your total processing cost
Your total cost to accept a card is made up of three parts:
- Interchange — paid to the issuing bank (fixed by the networks).
- Assessments — small fees paid to the card networks themselves (also fixed).
- Processor markup — what your provider charges for their service (the negotiable part).
Because interchange and assessments are identical no matter which processor you use, the only meaningful thing to compare between providers is the markup. This is exactly why we favor interchange-plus pricing, which shows interchange and markup separately, over bundled pricing that hides them inside one number.
How this helps you
Once you understand interchange, three things become possible. First, you can spot when a processor is padding their markup. Second, you can make small operational changes — like using chip readers instead of keying in cards — that may qualify more of your transactions for lower interchange categories. Third, you can compare quotes fairly, because you know which part of the price is actually up for negotiation.