What Are Interchange Fees?
Interchange is a wholesale fee paid by your acquiring bank to the cardholder's issuing bank on every transaction. Your processor passes this cost through to you as part of your processing fee. Interchange rates are published by Visa and Mastercard twice per year and vary based on several factors.
What Determines Your Interchange Rate?
The four main factors that affect your interchange rate:
- Card type — Rewards cards, premium cards, and corporate cards carry higher interchange than standard debit cards. A customer paying with a travel rewards Visa costs you more in interchange than a customer paying with a basic debit card.
- Transaction method — Card-present transactions (swiped, dipped, or tapped in person) have lower interchange than card-not-present transactions (online, keyed-in, phone orders). In-person transactions carry less fraud risk, so interchange is lower.
- Merchant Category Code (MCC) — Your MCC classifies your business type and determines which interchange category your transactions fall into. An incorrect MCC can result in higher interchange on every transaction you process.
- Card network — Visa, Mastercard, Discover, and American Express each set their own interchange schedules. Rates differ across networks for the same transaction type.
Interchange Rate Examples
| Transaction Type | Typical Interchange Rate |
|---|---|
| Debit card — card present | 0.05% + $0.21 |
| Standard Visa credit — card present | 1.51% + $0.10 |
| Rewards Visa credit — card present | 1.65% + $0.10 |
| Premium rewards card — card present | 2.10% + $0.10 |
| Standard credit — card not present | 1.80% + $0.10 |
| Corporate card — card not present | 2.65% + $0.10 |
Interchange vs. Your Effective Rate
Interchange is not what you pay your processor — it is what your processor pays on your behalf and passes through to you. Your effective rate includes interchange plus card network assessment fees plus your processor's markup.
On an interchange-plus pricing model, you can see exactly what interchange cost and what your processor charged on top. On a flat-rate or tiered model, interchange is bundled into a single rate that is often significantly higher than the actual interchange cost.
How to Reduce Your Interchange Costs
- Swipe or dip cards in person whenever possible to qualify for card-present interchange rates
- Ensure your MCC is correctly classified — a misclassification can cost you on every transaction
- Encourage debit card payments where appropriate — debit interchange is significantly lower
- Move to interchange-plus pricing so you pay actual interchange instead of a padded flat rate
- Settle your batch daily — delayed settlement can cause transactions to downgrade to higher interchange tiers