Interchange fees are a crucial component of payment processing but are often misunderstood. These fees, charged by card networks like Visa, Mastercard, Discover, and American Express, are paid by businesses to accept card payments. For many, the complexity of these fees can make it challenging to fully grasp their impact on business operations and profitability.
Understanding interchange fees is essential for businesses to manage their payment processing costs effectively.
In this guide, we’ll delve deeper into interchange fees, offering actionable insights and strategies to help your business minimize these costs while maximizing the benefits of accepting card payments.
What Are Interchange Fees?
Interchange fees are charged by card-issuing banks to merchants for processing credit and debit card payments. These fees are collected by card networks (Visa, Mastercard, etc.) and distributed to the issuing banks. They serve as compensation for managing the risks associated with electronic payments and ensuring the infrastructure required for smooth transactions. Card acceptance services provided by acquiring banks facilitate payment processing for businesses, which includes interchange fees paid to issuing banks. Merchant service fees are charged by acquiring banks or payment processors for managing card transactions, separate from interchange fees. While they represent a cost of doing business, accepting card payments often results in increased sales and customer satisfaction.
The interchange fee depends on a number of factors and isn’t always easy to understand. In this article, we will break down credit card interchange fees so you will know exactly how much you’re spending when running your business, as well as how businesses can reduce interchange costs.
In this post:
- What are interchange fees?
- How much does interchange cost?
- Visa interchange fees
- Mastercard interchange fees
- Discover interchange fees
- American Express interchange (OptBlue)
- What is the total cost of accepting credit cards?
- Set rate processing
- Subscription rate processing
TL;DR
- Interchange fees are not collected by your payment processor or bank; they go directly to the card-issuing banks.
- Interchange fees vary significantly depending on the card issuer, the issuing bank, type of transaction and/or merchant type. Memorizing all of the nuances is impossible, but understanding the interchange rate range most common for your business is a good best practice.
- While interchange fees are unavoidable, there are strategies to help minimize their impact, including choosing a cost-effective processor, implementing surcharging, and more.
Interchange Fees: The Basics
Interchange is the fee credit card companies charge businesses to accept their cards. Essentially, the merchant pays the card brand for the convenience of accepting this payment method since that is the way your customers want to pay.
Interchange fees help cover the risks associated with accepting electronic payments while ensuring your company has access to guaranteed payment when a customer makes a purchase. Interchange fees are simply a cost of doing business.
Understanding the concept of interchange fees is crucial for businesses looking to optimize their payment processing costs. These fees are set by the payment networks and are typically expressed as a percentage of the transaction value or as a fixed amount per transaction. The exact fee structure varies depending on factors like card type, transaction type, industry, and location. Interchange fees are calculated based on various factors such as card type, transaction method, and merchant category code.
It’s important to note that interchange fees are not collected by your payment processor or bank; they go directly to the card-issuing banks. Your processor, however, plays a role in facilitating the transaction and deducts its own processing fee from the overall charge.
Debit card transactions generally have smaller interchange fees compared to credit card transactions. This is because debit cards are linked directly to the customer’s bank account, and the risk of non-payment or default is lower. By actively encouraging customers to use debit cards, businesses can effectively reduce the interchange fees associated with card payments.
While interchange fees may seem like an added expense, it’s crucial to recognize the value they bring to your business. Accepting credit or debit card payments allows you to cater to a wider customer base, improve customer satisfaction, and enhance the overall shopping experience. By offering convenient payment options, you can attract more customers and increase sales.
To ensure the interchange fees you pay are reasonable and competitive, it’s essential to regularly review and negotiate your fee structure with your processor. Stay informed about any updates or changes in interchange fee schedules to ensure you’re paying the most optimal rates for your business.
Additionally, optimizing your payment processing infrastructure and implementing measures to minimize chargebacks can have a significant impact on reducing interchange fees. Ensuring complete transaction data is crucial for the proper qualification of credit card transactions at interchange. By investing in secure payment gateways, fraud detection systems, and robust transaction processing protocols, you can lower the risk of chargebacks and avoid unnecessary fees.
Remember, while interchange fees are an inherent part of accepting card payments, implementing smart strategies and staying proactive can help you minimize their impact on your business. One such strategy includes implementing credit card surcharging to offset the cost of interchange fees. By understanding the fee structure, promoting debit card usage, and optimizing your payment processing operations, you can effectively manage and reduce interchange fees, ultimately improving your bottom line.
Interchange fees are an essential consideration for businesses that accept card payments. These fees are a cost that businesses incur to facilitate the convenience and security of card transactions. While it’s true that businesses pay interchange fees, it’s important to understand that they are a necessary part of the payment ecosystem.
Interchange fees enable payment networks and card-issuing banks to cover the costs associated with maintaining the infrastructure, managing fraud risk, and providing the benefits and rewards programs associated with credit and debit cards.
As a business owner, it’s crucial to factor in these interchange fees when evaluating the overall costs of accepting card payments. By understanding the dynamics of interchange fees and implementing strategies to optimize their impact, businesses can effectively manage their expenses and find a balance that allows them to provide convenient payment options to customers while minimizing the amount they pay in interchange fees.
How Interchange Fees Affect Businesses
Interchange fees can significantly impact businesses, especially those that rely heavily on card transactions. These fees can influence operating costs, pricing strategies, and cash flow. For instance, the cost of interchange fees can add up quickly, affecting your bottom line. To mitigate these effects, businesses can employ several strategies.
One effective approach is negotiating with your processor to secure better rates. Choosing the right payment processor that offers transparent and competitive pricing can also make a big difference. Additionally, improving your card processing practices, such as ensuring transactions are processed correctly and securely, can help reduce fees.
Encouraging customers to use debit cards or even cash transactions can also lower your costs. By promoting these payment methods, you can reduce the overall cost of interchange fees and improve your cash flow.
Interchange fees can also influence your pricing decisions. To absorb these costs, you might need to adjust your pricing strategies, which can impact your competitiveness in the market. It’s essential to find a balance that allows you to cover interchange fees without deterring customers.
How Much Does Interchange Cost?
Interchange fees vary widely across card brands, credit card networks, card types, and how you process cards. Credit cards that offer points or rewards cards typically come with higher interchange costs, as do corporate cards.
Generally, debit cards are much less expensive than credit card payments for you to process and come with a lower interchange rate than credit cards. Card-present transactions also incur lower rates compared to card-not-present transactions. However, an exemption to this is debit cards issued by a bank with less than $10 billion in assets, also referred to as “exempt”, often a local bank or credit union—these have some of the highest interchange rates of all.
While you have control over whether a cardholder’s card is swiped or keyed in at the point of sale, you can’t control what kind of card they use. That’s why interchange varies so widely. For a $100 transaction, a swiped Mastercard debit card will cost you around 27¢. However, for the same transaction, using a Visa corporate commercial credit card will cost you around $2.60. It’s easy to see how over the course of the year, these fees can stack up.
Below, we’ll give a sampling of interchange rates for the most popular card brands. Please note there are many other categories not covered in this table, including variations by card type, business type, whether the bank is regulated or exempt, and more.
Credit Card Interchange Fee Calculation
Credit card interchange fees are calculated based on several factors, making the formula quite complex. These factors include the type of card, transaction method, merchant category code (MCC), size of the transaction, and processing details.
For example, Visa’s interchange fees depend on various elements such as the type of card (credit or debit), the transaction method (card-present or card-not-present), and the business’s industry. Similarly, Mastercard’s interchange fees vary based on the type of card, transaction method, and industry.
The MCC assigned to your business also plays a crucial role. Different industries have different MCCs, which can affect the interchange fees you pay. For instance, businesses in certain sectors like charities or travel agents may be eligible for lower interchange fees.
Understanding how these factors influence the calculation of interchange fees can help you better manage your payment processing costs. By being aware of the variables at play, you can take steps to optimize your transactions and potentially lower your fees.
Visa Interchange Fees
As mentioned earlier, interchange fees will depend on several variables. Before reading on, let’s also clarify the terminology you’ll see below.
Beyond the card type (debit, or the various kinds of credit cards), you’ll also see “exempt” or “regulated” which indicate different fees for debit cards. The Durbin Amendment established these two ratings to differentiate the card-issuing banks based on their assets.
For card issuing banks with assets in excess of $10 billion, these are regulated; card-issuing banks with less than $10 billion in assets are non-regulated and fall under the “exempt” category. The difference in these fees does vary significantly and is something the merchant has no control over or visibility into when the customer presents their card to pay.
Below is a list of common interchange for various scenarios, for the full list of interchange fees by Visa card type, refer to the guide linked below:
| Transaction Type | Card Type or Bank Classification/Interchange Fee |
| CPS/Retail, Debit – Card Present | Exempt: 0.80% + $0.15
Regulated: 0.05% + $0.21 |
| CPS/Card Not Present, Debit | Exempt: 1.65% + $0.15
Regulated: 0.05% + $0.21 |
| CPS-Restaurant, Debit – Card Present | Exempt: 1.19% + $0.10
Regulated: 0.05% + $0.21 |
| CPS/e-Commerce Basic, Debit | Exempt: 1.65% + $0.15
Regulated: 0.05% + $0.21 |
| CPS/Retail, Prepaid | Exempt: 1.15% + $0.15
Regulated: 0.05% + $0.21 |
| Retail, Credit, Performance Threshold III | Visa Signature: 1.65% + $0.10
Visa Signature Preferred: 2.10% + $0.10 Traditional Rewards: 1.51% + $0.10 |
| Small Merchant Product 2, Credit | Visa Signature: 1.43% + $0.10
Visa Signature Preferred: 1.88% + $0.10 Traditional Rewards: 1.43% + $0.10 |
See full Visa interchange rates.
Mastercard Interchange Fees
You’ll see below that MasterCard and Visa do not use the same criteria to delineate the type of transaction or card types, nor does their official guidance use the same verbiage. However, you’ll find the average interchange fee range of percentage plus the flat fee per transaction is similar to other popular card issuers.
| Transaction type | Program Name (Card Type)/Interchange Fee |
| Restaurant | World (USD): 1.85% + $0.10
World High Value (USD) 2.00% + $0.10 |
| Small Ticket (Transaction Amount <$5), Card Present | Core (USD): 1.65% + $0.02
World (USD): 1.90% +$0.02 World High Value (USD): 2.30% + $0.02 |
| Small Ticket (Transaction Amount <$5), Card Not Present | Core (USD): 1.95% + $0.02
World (USD): 2.20% +$0.02 World High Value (USD): 2.60% + $0.02 |
| Regulated POS Debit, purchases and purchases with cash back | Debit Rate (USD): 0.05% + $0.21
Prepaid Rate (USD): 0.05% + $0.21 |
| Payment Transactions, Debit and Prepaid Cards | Exempt Debit (USD): 0.19% + $0.53
Exempt Prepaid (USD): 0.19% + $0.53 |
| PIN Debit Payment Transaction | Rate (USD): 0.19% + $0.53 |
| PIN Regulated POS Debit | Rate (USD): 0.05% + $0.21 |
See full Mastercard interchange rates.
Discover Interchange Fees
Discover does not publish its full interchange rates online, so below is an estimate provided by a third-party provider. Please note that for debit cards, the fees will vary depending on whether the bank is regulated or exempt and for credit cards it will vary depending on whether the card is swiped or hand-keyed.
| Card Type | Interchange Fee |
| Discover Debit, card present | Exempt: 1.10% + $0.16
Regulated: 0.05% + $0.22 |
| Discover Debit, card not present | Exempt: 1.75% + $0.20
Regulated: 0.05% + $0.22 |
| Discover Consumer credit card | Swiped: 1.56% + $0.10
Keyed: 1.87% + $0.10 |
| Discover Rewards | Swiped: 1.71% + $0.10
Keyed: 1.97% + $0.10 |
To access full Discover interchange rates, you need to use a verification code provided by your acquirer.
American Express Interchange Fees
American Express interchange fees work differently from the other brands in that the card type does not impact the processing rate. Instead, your industry or merchant category code will play a larger role in deciding how much you pay in credit card processing fees.
For smaller businesses, you’ll probably be accepting American Express through their program called OptBlue. Through OptBlue, your payment technology provider will determine how much you pay for AmEx and bundle it in with the ability to accept more popular card types. This way, you can accept AmEx customers (who historically have higher ticket prices) without breaking the bank.
You can read more about the OptBlue program at Merchant Maverick.
How Do Credit Card Interchange Fees Work?
As you can see, interchange fees vary from one credit card network to the next. These fees are set by Visa, Mastercard, Discover, and American Express every April and October. As for how these fees are split, a percentage of the interchange rates goes to the card issuers aka card-issuing banks—e.g., Capital One, Chase, or Bank of America. The rest of the fees go to the credit card brand. This is important to point out because it shows that interchange fees are not charged by your payment processing company (and thus, they’re non-negotiable).
Payment processors typically charge a markup on top of the interchange, which is essentially how they make money. Understanding interchange pricing models, such as interchange plus, tiered, and flat-rate pricing, can help businesses manage their costs effectively. So while you technically can’t negotiate your way to lower interchange fees, you can still save on overall payment processing costs by working with the right provider.
Factors Affecting Interchange Fees
Several factors can affect interchange fees, and understanding these can help you manage and reduce your costs effectively:
- Type of Card: Credit cards often have higher interchange fees compared to debit cards. Encouraging the use of debit cards can help lower your fees.
- Transaction Method: Card-present transactions, where the card is physically swiped or inserted, typically have lower interchange fees than card-not-present transactions, such as online or over-the-phone payments.
- Merchant Category Code (MCC): The MCC assigned to your business can impact your interchange fees. Certain industries, like charities or travel agents, may qualify for lower fees.
- Size of Transaction: Larger transactions often incur higher interchange fees. However, some processors offer lower rates for high-volume transactions.
- Processing Details: The choice of processor and acquiring bank can also affect your interchange fees. Different processors and banks have varying fee structures, so it’s essential to choose one that offers competitive rates.
By understanding these factors, you can take proactive steps to manage and reduce your interchange fees. For example, optimizing your transaction methods and choosing the right payment processor can lead to significant savings.
How Much Do You Pay?
At the end of the day, how much you’re paying for credit card processing relies on your payment solutions provider. Many payment companies like Stripe, Square, PayPal, and bank merchant services offer flat-rate processing. Some others, including Stax, offer subscription-style processing that gives you access to the lowest rates of interchange. To mitigate the impact of interchange fees, some businesses implement minimum transaction amounts for card payments.
Interchange Fee Regulation
Interchange fee regulation varies by region and country, impacting how fees are structured and capped. In the United States, the Durbin Amendment introduced fee caps for debit and prepaid card transactions, aiming to reduce costs for merchants. This regulation has led to lower costs for many businesses, particularly those that process a high volume of debit card transactions.
In the European Economic Area (EEA), interchange fee regulations were introduced in 2015, capping fees for cross-border transactions. These regulations aim to create a more transparent and competitive payment processing environment, benefiting both businesses and consumers.
In recent years, there has been a push for greater transparency and standardization in interchange fee calculation. Some payment processors now offer interchange++ pricing, which provides a detailed breakdown of the three payment card costs: interchange fees, card scheme fees, and acquirer markup. This pricing model can help businesses better understand their interchange fees and make more informed decisions about their payment processing.
By staying informed about interchange fee regulations and choosing transparent pricing models, businesses can better manage their payment processing costs and ensure they are paying fair and competitive rates.
How Businesses Can Reduce Interchange
In the modern digital age, electronic payments have become the norm, with credit and debit cards being widely used for transactions. However, along with the convenience of card payments, businesses face the challenge of interchange fees, which can significantly impact their bottom line.
Choose the Right Payment Processor
The choice of payment processor plays a crucial role in managing interchange fees. Different processors offer various pricing models, so it’s essential to compare options and negotiate competitive rates. Look for processors that provide transparent pricing structures and offer interchange plus pricing, where the interchange fee is passed through directly without any markup. This approach can help you avoid unnecessary additional charges and optimize your fee structure.
Optimize Card Acceptance
Understanding the types of cards you accept and their associated interchange fees is key to minimizing costs. Payment networks classify cards into different categories, and fees vary depending on factors like card type (credit or debit), payment method (chip and PIN, contactless), and industry-specific cards (corporate, rewards). By reviewing your processing statements regularly and optimizing your card acceptance policies, you can encourage customers to use lower-cost payment methods and reduce interchange fees.
Encourage Debit Card Usage
Debit cards generally have smaller interchange fees compared to credit cards. Actively promoting debit card usage among your customers can help lower your overall interchange fee expenses. Consider offering incentives, such as discounts or rewards, for customers who choose to pay with their debit cards. This not only benefits your customers but also reduces your payment processing costs.
Streamline Processing and Reduce Chargebacks
Efficient transaction processing and minimizing chargebacks can have a positive impact on interchange fees. Implementing secure payment gateways and fraud detection systems can help reduce the risk of chargebacks, which can result in costly fees. Furthermore, optimizing your payment infrastructure to streamline processing and minimize errors can help prevent unnecessary charges and improve overall cost efficiency.
Regularly Review and Update Your Fee Structure
Interchange fees are subject to change, as payment networks periodically update their fee schedules. It is crucial to stay informed about these changes and periodically review your fee structure to ensure you’re paying the most competitive rates available. This review process may involve renegotiating with your processor or exploring alternative options in the market to find the best fit for your business.
Consider Surcharge Programs
Depending on your region and applicable regulations, you may have the option to implement surcharge programs, where you pass on the interchange fees to customers directly. Implementing a surcharge or service fee can help businesses cover the costs of interchange fees associated with credit card transactions. While this strategy requires careful consideration and compliance with legal requirements, it can be an effective way to offset interchange fees (especially for a small business) and transfer the cost to the end-user.
Interchange fees are charges imposed by payment networks, such as Visa and Mastercard, for processing card transactions. While these fees are unavoidable, there are several smart strategies that businesses can employ to minimize their impact. In this article, we will explore practical tips to help businesses navigate and reduce interchange fees effectively.
How Different Processing Rate Strategies Work
By understanding fee structures and leveraging strategies like promoting debit card usage, choosing the right payment processor, and implementing fraud prevention measures, businesses can effectively manage these costs.
Tiered Pricing
A common pricing model in the payment processing realm is called tiered pricing. This method bundles the interchange rate with the processor’s markup and then puts your transactions into three tiers: qualified, mid-qualified, and non-qualified. Swipe fees, also known as interchange fees, represent a significant portion of card processing fees incurred by businesses.
Card payments that are in the “qualified” tier incur lower rates while “non-qualified” transactions cost more to process.
Here’s where things get dicey: how transactions are categorized is completely at the discretion of the processor. What some payment processing companies consider as “qualified” may not be the same for others. There’s no transparency with tiered pricing fees, making it difficult to figure out whether or not you’re overpaying.
Set Rate Processing aka Flat Fee Processing
With set rate processing, you have a non-negotiable flat fee per credit card transaction, regardless of card or industry type. For instance, Stripe charges 2.9% + 30¢ per transaction. So whether you’re accepting a debit card with a 0.05% + 22¢ interchange rate or a corporate card with a 2.50% + 10¢ interchange rate, you pay the same rate.
While this may seem simpler at first, the reality is that you could be overpaying for credit card processing with these systems. In the example above, Visa would receive the .05% + 22¢, while Stripe would be making a whopping 2.5% + 8¢ on your transaction. That’s why we introduced simple subscription-based pricing.
Flat Subscription Rate Processing
Subscription-based processors have a similar concept to other subscription services you’re used to, such as warehouse stores like Costco. You pay a low fee to get access to warehouse pricing on goods, where you then can buy as much as you want with no cap on savings. Stax’ subscription pricing starts at just $99 per month. Regardless if your sale is $50 or $5,000, you pay the flat cost of processing without a percent markup. Transaction fees include interchange fees, card scheme fees, and acquirer markup, all of which contribute to the overall cost of card transactions.
Every business is different, which is why we don’t believe in one-size-fits-all solutions. Based on the types of cards your customers are using and your average transactions, we’ll be able to show you exactly which type of plan makes sense for your business.
The Bottom Line
Interchange fees are an unavoidable part of accepting card payments but don’t have to drain your profits. For businesses processing a high volume of transactions, subscription-based models like those offered by Stax can be especially beneficial. Explore our solutions to see how we can help reduce your payment processing expenses while enabling secure, seamless transactions for your customers.
Quick FAQs about Credit Card Interchange Fees
Q: What are Credit Card Interchange Fees?
Credit Card Interchange Fees are the charges that credit card companies impose on businesses for the convenience of accepting their cards. They are set by the payment networks and are typically expressed as a percentage of the transaction value or as a fixed amount per transaction.
Q: Who sets the Credit Card Interchange Fees?
Credit Card Interchange Fees are set and updated every April and October by credit card networks such as Visa, Mastercard, Discover, and American Express.
Q: Who collects the Credit Card Interchange Fees?
Interchange Fees are not collected by your payment processor or bank. They go directly to the card-issuing banks. The payment processor facilitates the transaction and deducts its own processing fee from the overall charge.
Q: Why are Interchange Fees important for businesses?
Understanding and managing Interchange Fees is crucial for businesses as they significantly impact payment processing costs. They enable businesses to offer convenient payment options, cater to a wider customer base, and enhance the shopping experience, thereby increasing sales.
Q: What factors influence the amount of Interchange Fees?
The exact fee structure varies depending on factors like card type (credit or debit), transaction type (chip and PIN, contactless, etc.), industry, and location. Also, Debit card transactions generally have lower interchange fees compared to credit card transactions.
Q: What strategies can businesses employ to minimize Interchange Fees?
Businesses can minimize the impact of Interchange Fees by choosing a cost-effective payment processor, promoting debit card usage, optimizing payment processing operations, implementing measures to minimize chargebacks, and regularly reviewing and negotiating their fee structure with the payment processor.
Q: What is the average range of Interchange Fees?
On average, Interchange Fees are around 0.3-0.4% of the transaction amount in Europe and 2% in the US.
Q: How does the choice of Payment Processor affect Interchange Fees?
The choice of Payment Processor plays a key role in managing Interchange Fees. Different processors offer various pricing models, and choosing one that provides transparent pricing structures and offers interchange plus pricing can help businesses optimize their fee structure.
Q: What are the differences between Interchange Fees for Visa, Mastercard, Discover, and American Express?
The Interchange Fees vary from one credit card network to the next, and the fees depend on several variables like card type, transaction type, and the bank’s assets. Each credit card network has its own fee structure and rules for partners.
Q: What are the benefits of Flat Subscription Rate Processing?
Flat Subscription Rate Processing allows businesses to pay a flat cost for processing without a percent markup, regardless of the sale amount. It’s a transparent and cost-effective solution, especially for businesses with high volumes of transactions.
