Understanding Interchange Fees: What Every Merchant Should Know

What Is an Interchange Fee?

Every time a customer pays with a credit or debit card at your business, a small percentage of the transaction is automatically routed to the bank that issued that card. This payment is called the interchange fee, and it flows from your acquiring bank (the bank that processes your transactions) to the cardholder's issuing bank.

Interchange is not a fee your processor invented. It is set by the card networks — Visa, Mastercard, American Express, and Discover — and published in publicly available rate tables. Visa and Mastercard update their interchange schedules twice a year, typically in April and October.

The purpose of interchange is to compensate the issuing bank for the risk it takes on when extending credit, the cost of fraud protection, and the expense of running rewards programs. When a customer earns airline miles or cash back on a purchase, that reward is largely funded by the interchange fee the merchant paid.

How Much Are Interchange Fees?

Interchange rates vary significantly depending on several factors. There are hundreds of interchange categories, but the most important variables are:

Card Type

Basic consumer debit cards carry the lowest interchange rates — often 0.05% + $0.22 for PIN debit transactions. Standard consumer credit cards run higher, typically 1.51% + $0.10 for a Visa card-present transaction. Rewards cards, premium cards, and business credit cards carry the highest rates, sometimes exceeding 2.5% + $0.10.

This is why merchants who accept a lot of corporate cards or premium rewards cards often have higher effective rates than merchants who primarily see debit cards. You cannot control which card your customer uses, but understanding this dynamic helps you interpret your statement accurately.

Transaction Type: Card-Present vs. Card-Not-Present

When a customer physically taps, dips, or swipes their card at your terminal, that is a card-present transaction. The card network can verify the card is physically in the customer's possession, which reduces fraud risk — and interchange rates reflect that lower risk.

Card-not-present transactions — online orders, phone orders, manually keyed entries — carry higher interchange rates because the fraud risk is greater. A Visa card-present consumer credit card might carry 1.51% + $0.10, while the same card used for an e-commerce transaction might carry 1.80% + $0.10. If your business manually keys a lot of transactions, this difference adds up.

Industry Category (MCC)

Every merchant is assigned a Merchant Category Code (MCC) that describes the type of business. Certain industries have negotiated preferential interchange rates with the card networks. Grocery stores, utilities, government agencies, and fuel stations often qualify for lower interchange rates because of the high volume and low fraud rates in those categories.

Your MCC is assigned when you open your merchant account. If you believe your MCC is incorrect, it is worth asking your processor to review it — being in the wrong category can cost you money.

Why Interchange Matters More Than Your "Rate"

Interchange typically accounts for 70–90% of your total processing costs. Your processor does not set interchange — they pass it through to you and add their own markup on top. The markup is what you are actually negotiating when you shop for a processor.

The problem is that many processors use tiered pricing, which bundles interchange into opaque categories called "qualified," "mid-qualified," and "non-qualified." This structure hides the actual interchange cost and gives the processor discretion to classify transactions in ways that maximize their profit.

Under interchange-plus pricing, you see the exact interchange cost for every transaction, plus a fixed markup. This is the only pricing model that gives you full transparency into what you are paying and why. See our article on interchange-plus vs. tiered pricing for a detailed comparison.

How to Reduce Your Interchange Costs

You cannot negotiate interchange rates directly, but you can take steps to qualify for lower rates:

• Always use a chip reader or contactless terminal for in-person transactions. Swiped transactions often downgrade to higher interchange categories.
• Never manually key a transaction when the card is present. Keyed transactions are treated as card-not-present and carry higher rates.
• For card-not-present transactions, always collect and submit the billing address and CVV. This enables Address Verification Service (AVS) and can qualify the transaction for a lower interchange category.
• Settle your transactions daily. Delayed settlement can cause transactions to downgrade to higher interchange categories.
• For B2B transactions, collect and submit Level 2 or Level 3 data (purchase order number, tax amount, line-item detail). This can significantly reduce interchange on commercial card transactions.

Reading Interchange on Your Statement

If you are on interchange-plus pricing, your statement will show a line for each interchange category, the rate that applied, and your processor's markup separately. This is the clearest format and the easiest to audit.

If you are on tiered pricing, you will see only the bucket rates — qualified, mid-qualified, non-qualified — without any visibility into the underlying interchange. This makes it impossible to verify whether your transactions are being classified correctly. Our guide on how to read a merchant statement walks through both formats in detail.

Frequently Asked Questions