Interchange Explained: What It Is and Why It Moves

The fee nobody explains

If you have ever looked at a processing statement and wondered why your total fees came out higher than the rate you signed up for, interchange is usually the answer. It is usually the largest single component of what you pay to accept cards, and it is rarely explained clearly.

This is that explanation.

What interchange actually is

Interchange is a fee that generally flows to the issuing bank (the bank that gave your customer their card) every time a card transaction settles. It compensates the issuing bank for the credit risk it takes on and for the cost of the rewards program attached to the card.

Card networks such as Visa and Mastercard facilitate this transfer and set the interchange rates for their cards. They publish their interchange schedules and update them periodically. The schedules are long and list many rate categories.

Your processor does not set these rates. Your agent does not set these rates. Nobody in your payment chain sets these rates except the card networks themselves.

Why rates vary so much

The most common question merchants ask is: why does one transaction cost 1.8% and another cost 2.7%, even though both were Visa cards? Illustrative example only — not an actual merchant quote or promised result.

Interchange rates vary based on several factors that the card networks have determined correlate with risk and cost:

The most impactful factor in practice is whether the card was physically present at the time of the transaction. A card-present transaction — swipe, dip, or tap — qualifies for a lower interchange category because the issuing bank considers it lower risk. A keyed or online transaction carries higher interchange because there is greater fraud exposure.

This is why an e-commerce business typically has a higher effective rate than a comparable brick-and-mortar store, even if they use the exact same processor at the exact same markup.

The rewards card problem

Every time a customer uses a premium rewards card — airline miles, cash back, hotel points — the interchange rate on that transaction is higher than it would be for a standard card. The issuing bank uses that higher interchange to fund the rewards program.

From your perspective as a merchant, card-brand rules generally do not let you decline rewards cards from a network you already accept, and the higher interchange cost is usually absorbed by the business while the cardholder earns the rewards. Whether you can apply a surcharge or cash-discount program depends on state law, card-brand rules, processor approval and program configuration. This is general information, not legal advice.

As a general pattern, standard debit and credit cards carry lower interchange than rewards, premium travel, and corporate cards. Exact rates change over time; check the card networks' current published schedules.

What you can do — and cannot do

You cannot change interchange rates. You cannot avoid them. You can, however, take steps to make sure every transaction qualifies for the lowest applicable interchange category.

1. Step 1

   Always use a card-present method when the customer is in front of you

   Swiping, dipping, or tapping generally qualifies for lower interchange than keying. If your terminal can read the chip, use it. Every manually keyed transaction on a chip card costs you more and is also a compliance red flag.
2. Step 2

   Submit complete transaction data

   For B2B and corporate cards, submitting Level 2 or Level 3 data (purchase order number, item detail, tax amount) can qualify for lower interchange categories. If you sell to businesses, ask your processor whether your integration supports enhanced data.
3. Step 3

   Batch and settle same-day

   Transactions that are authorized but not settled within 24 hours can downgrade to a higher interchange category. Most modern terminals batch automatically at end of day — confirm yours does.
4. Step 4

   Keep your MCC accurate

   Your Merchant Category Code determines which interchange table applies to your account. An incorrect MCC can mean you are paying retail interchange when you qualify for a preferential rate (grocery, utilities, government, non-profit). Ask your processor to verify yours.

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You cannot negotiate interchange, but you can make sure every transaction qualifies for the lowest rate the card network allows.

Data Plus

The interchange-plus pricing model

One of the most transparent pricing models available is interchange-plus: you pay the actual interchange and card-brand assessment costs for each transaction, plus a fixed markup from the processor. The markup is the processor's margin, disclosed separately.

Under interchange-plus, when interchange changes (for example, when card networks update their schedules), the interchange portion of your costs generally changes with it. Under a flat-rate or tiered model, those changes may not be passed through to you.