What are Interchange Fees? [Quickstart Guide]
Interchange fees (also known as interchange rates or interchange reimbursement fees) are transaction fees that you must pay to the card-issuing bank each time a shopper completes a purchase from your store using a credit or debit card.
Interchange fees cover the costs that come with accepting, processing, and authorizing card transactions. Many factors can influence the fee amount, making it difficult to calculate exactly how much the charges will be.
That’s why we’ve created this simple guide to help you understand what interchange fees are, the factors that affect rates, and resources to look up interchange fees per card network.
What are interchange fees?
Each time a credit or debit card transaction is processed, the acquirer (or acquiring bank) pays the issuer (or cardholder’s bank) an interchange fee to transfer the funds from the issuing bank to the acquiring bank. Then your business is charged an interchange fee by card networks like Visa and Mastercard, for facilitating the process. It’s part of the card network’s card processing fees.
The three fees associated with payment card processing are:
- Card scheme fees. The fee you pay to the card scheme in exchange for using its network.
- Acquirer markup fees. The fee you pay to the acquirer for acquiring the funds from the cardholder (your customer).
- Interchange fees. The fee you pay to the issuing bank (or cardholder’s bank).
Generally, interchange fees are the biggest part of credit card processing fees.
Further reading: Your Guide to Payments Terminology
How are businesses charged for interchange fees?
If you look at Visa or Mastercard’s interchange fees, you’ll see there are actually many interchange fees that make up the final (single) interchange fee you pay. But simply put, credit card networks like Visa and Mastercard, payment gateways and processors, card-issuing banks, and your business bank account all charge a fee for every customer transaction you process through your website. It’s a percentage fee based on the total transaction amount and is usually listed as a single, combined amount on the invoice from your payment processor.
What are the average credit card interchange fees?
In Europe, the average interchange fees are around 0.3-0.4% of the total transaction amount. In the US, it’s 2%.
Interchange fees are set by card schemes and cannot be negotiated. Card networks also regularly adjust their interchange rates — for example, Mastercard and Visa publish new rates every year in April and October.
The best way to find the exact fees today is to review the card scheme’s website. Here are the interchange fees for Mastercard and Visa in various regions:
Mastercard interchange rates
Visa interchange rates
Not all credit card networks work exactly the same and some don’t publish interchange rates online, including Discover and American Express.
How are interchange fees calculated?
To make it simpler for you, card schemes incorporate interchange fees into a flat rate plus a percentage of the transaction amount, including sales tax. But there are many variables involved in calculating interchange fees.
For example, some credit card companies offer different types of cards that involve different interchange fees. How the payment is completed can also influence the interchange rate.
Factors that influence interchange rates
There are many factors that can impact interchange fees. Let’s take a look:
Card scheme (or card network)
Each card scheme, for example, Visa, Mastercard, American Express, etc. charges a different interchange rate. Therefore, the interchange fee that appears on your invoice will also depend on the credit card your customer pays with.
Interchange fees vary depending on the type of card the customer uses.
- Credit vs debit card. Interchange fees for credit and deferred debit cards are higher than debit and prepaid cards due to the higher level of risk that comes with these card types.
- Consumer vs commercial/business card. Credit cards issued to a business have higher interchange rates than credit cards for individuals.
- Rewards cards. Rewards programs generally offer extras to customers, so the interchange fees are higher to cover the costs.
Business category or merchant category code (MCC) and size
Your business category can affect interchange fees. For example, if you sell CBD products, you may incur higher interchange fees due to it being a high-risk industry. But this all depends on the card network.
And larger merchants usually have more power to negotiate lower interchange rates because of their business size and proven revenue.
💡 Further reading: How to Sell CBD Online: Your Guide to Success
Type of transaction
When it comes to interchange fees, the rates change depending on whether the credit card is present during the transaction or not and if it’s an international or domestic payment.
- Card-present vs card-not-present. In-person payments or card-present (CP) transactions have less risk for fraud, leading to lower interchange rates than card-not-present (CNP) transactions (i.e. online or digital payments).
- Domestic vs cross-border payments. If the cardholder’s bank is in the same country as your business, it’s considered a domestic transaction and is usually less expensive than cross-border transactions where the card-issuing bank and your business are not based in the same country.
Are you wondering if you can control any of these factors to reduce the impact on your interchange fees (and your bottom line)? In short, you could try things like encouraging customers to use certain card types or shopping in person, but these small hacks will eventually hurt the customer experience and could turn prospective and existing customers away. You’re better off finding other ways to decrease business costs.
The difference between Interchange++ and blended pricing
The most used pricing models for card transactions are Interchange++ (Interchange Plus Plus) and blended pricing. Transparency is the major difference between the two.
With Interchange++ you see a detailed breakdown of the three card payment processing fees you learned earlier. The interchange fee, the card scheme fee, and the acquirer markup fee. You’re only charged the actual interchange fee, and because interchange fees range depending on various factors, the rate can sometimes be lower than if it were fixed.
With a blended pricing model, you’re charged the average processing cost plus a fixed markup fee. In this case, the markup fee for every transaction is the same, and you can’t see how costs are split. It’s easier to understand, but not transparent. There’s no way to identify if you’re saving money due to lower interchange rates.
Interchange fees are part of accepting payments
You may be worried about interchange fees adding up and hurting your profits, but the benefits of accepting more online payment methods greatly offset the costs of interchange fees. Regardless of your business size or the type of products you sell, if you want to boost customer satisfaction, increase conversions, and build brand loyalty, letting customers pay with credit or debit cards is vital.
What are interchange fees FAQ
Who determines interchange fees?
How much are interchange fees?
Interchange fees vary greatly depending on various factors, including the type of card and how payment is completed. The card scheme also makes a difference. Visa, Mastercard, American Express, etc. each charge a different interchange rate. Use an interchange fee calculator to estimate interchange fees.
Are interchange fees negotiable?
No, interchange fees are non-negotiable as they are set by the card networks. However, PSP transaction fees are sometimes negotiable depending on your sales volume and reliability.
Can I pass interchange fees onto my customers?
Some businesses do pass these costs onto their customers in the form of a surcharge or service fee, or it’s built into the product price. However, regulations on this practice vary by state and country, so it's important to consult with a legal advisor before doing so.
How can I lower my interchange fees?
While you can't negotiate interchange fees, you can ensure you're paying the lowest possible rate by making sure you're processing transactions in the most secure way possible, using the latest technology and adhering to the card networks' guidelines.
How are interchange fees different from processing fees?
Interchange fees are just one component of the total processing fees you pay as a merchant. The total processing fee also includes the PSPs transaction fees. With MONEI, fees are dynamic, so as your sales volume increases, your transaction fees decrease in real-time.
How do interchange fees impact my business's bottom line?
Interchange fees are a cost of doing business, and they reduce the net amount of each transaction, thus reducing your total revenue. It's important to factor them into your pricing and budgeting.
Alexis Damen is the Head of Content at MONEI. She loves breaking down complex topics about payments, e-commerce, and retail to help merchants succeed (with MONEI as their payments partner, of course).