Interchange fee
The fee a merchant's bank pays the cardholder's bank on each card transaction, the largest part of what merchants pay to accept cards.
In short
- Rates are set by the card networks and vary by card type, merchant category and how the card is used.
- Premium rewards and commercial cards usually carry higher interchange than basic cards.
- Merchants see it bundled into their processing fees unless they are on interchange-plus pricing.
An interchange fee is paid on every card transaction by the merchant's acquiring bank to the cardholder's issuing bank. The acquirer passes it on to the merchant as part of the processing fee. It typically makes up the largest share of the cost of accepting cards.
What determines the rate
- Card type: debit, standard credit, premium rewards or commercial cards each have their own rates.
- How the card is used: in-person chip or tap transactions usually cost less than online or keyed-in ones, which carry more fraud risk.
- Merchant category: some industries, such as grocery or charities, have lower rates.
- Data provided: in the US, commercial card transactions that include extra data, such as tax amounts and line items, can qualify for lower rates.
How merchants pay it
On interchange-plus pricing, the merchant pays the actual interchange plus a fixed markup, and sees each component on its statement. On blended or flat-rate pricing, the processor charges one rate for everything, which is simpler but hides the underlying cost.
Regulation
Interchange is regulated or capped in several places. The EU caps consumer debit and credit interchange at 0.2% and 0.3%. In Canada, the major networks agreed with the federal government to lower rates for eligible small businesses from October 2024.
Worked example
One sale, three fees
A café takes a $20 tap payment on a rewards credit card. On interchange-plus pricing, its statement shows interchange of about 1.7%, $0.34, a network assessment of about $0.03, and its processor's markup of $0.10. Total cost $0.47. The same sale on a debit card would have cost a fraction of that.