Interchange is the fee paid to the bank that issued your customer's card every time that card is used. It is set by the card networks rather than by your payment processor, it is the largest single component of what you pay to accept cards, and it is identical no matter which processor you use.
Where interchange sits
Every card payment splits three ways. Interchange is the first and largest slice.
| Component | Paid to | Roughly |
|---|---|---|
| Interchange | The bank that issued the card | 1.5% – 2.1% |
| Network assessment | Visa / Mastercard / Discover | 0.13% – 0.15% |
| Processor markup | Your payment processor | The remainder |
Why it exists
The issuing bank carries real cost and real risk: it extends credit, absorbs fraud losses, funds the rewards programme, and pays out if the cardholder disputes the charge. Interchange is how the bank is compensated for that by the merchant benefiting from the sale.
This is also why a premium rewards card costs you more to accept than a basic debit card. The airline miles your customer earns are funded out of the interchange you paid.
What makes interchange vary
- Card type. Debit is cheapest, standard credit is mid-range, premium rewards and corporate cards are the most expensive.
- Transaction type. Card-present transactions carry lower interchange than card-not-present, because the fraud risk is lower.
- Merchant category. Some categories, notably supermarkets and utilities, have their own preferential rates.
- Data quality. Passing richer data at authorisation can qualify a transaction for a cheaper category — see level 2 and level 3 data.
What this means in practice
When you compare processors, you are comparing markup — the third row of the table above. Interchange and assessments are the same wherever you go. That is why interchange-plus pricing separates them out, and why flat-rate pricing bundles them into one number that hides how much is margin.
GOOD QUESTIONS
Frequently asked
Who sets interchange rates?+
The card networks — Visa, Mastercard, Discover and American Express — publish interchange schedules, typically updated twice a year. The fee itself is paid to the bank that issued the customer's card, not to the network and not to your processor.
Can I negotiate interchange?+
No. No processor can discount interchange because no processor receives it. Any provider claiming to beat interchange is describing a change to their own markup, which is the only genuinely negotiable component.
Why do some cards cost more than others?+
Because interchange varies by card type. Premium rewards cards carry the highest interchange, since the rewards the cardholder earns are funded out of that fee. Debit cards are the cheapest, and in the US are capped by regulation for large issuing banks.
How much of my processing bill is interchange?+
Typically 70–80% of a blended flat rate. On a 2.9% + 30¢ transaction, roughly 1.5–2.1% is interchange, about 0.14% is the network assessment, and the remainder is the processor's margin.