Interchange
Also known as: Interchange fee
The fee set by the card networks and paid to the customer's issuing bank on every card sale.
Interchange is the largest component of card processing cost: a fee set by Visa, Mastercard, and other networks that goes to the cardholder's issuing bank. Rates vary by card type (rewards cards cost more), channel, and merchant category. No processor can discount interchange itself; they only mark it up.
How it works
What moves your interchange bill is the mix of cards your customers hand over, not how hard you negotiate. Regulated debit from the largest US banks is capped by law, and it is the cheapest card you can take. Premium rewards and commercial cards sit at the top, because interchange is what funds the points and cashback the cardholder earns. You rarely see it broken out. Unless you are on interchange-plus pricing, interchange sits inside whatever rate you were quoted.
The same card can cost you two different amounts depending on how the sale is handled. A transaction that qualifies for a cheaper category drops into a costlier one. That is a downgrade. Settle your batch late and you get one. So will keying a card without an address check, or leaving out the extra data a commercial card expects. On a flat-rate plan you never see it, because the provider has priced the average in. On interchange-plus it shows up as sales landing in a more expensive interchange line.
Underneath all of it are the interchange tables Visa and Mastercard publish, which run to hundreds of categories and get revised roughly twice a year, typically in April and October. Each sale is matched to one category based on the card product, how it was accepted, your merchant category code, and the data your processor sends with the transaction. The issuing bank keeps that amount out of the settled funds. Your processor bills it on to you and cannot discount a cent of it.
Worked example
Two $200 sales, $1.30 apart in wholesale cost. The first is a basic consumer credit card, chip-read in store, carrying interchange in the region of 1.65% + $0.10, so about $3.40. The second is a premium rewards card keyed into an online checkout, nearer 2.30% + $0.10, so about $4.70. Your processor's markup is identical on both, and that $1.30 gap would be much the same at any processor you signed with.
Frequently asked questions
- Why do rewards credit cards cost more to accept?
- The points, miles, or cashback have to be paid for, and interchange is where the issuing bank finds the money. Premium consumer and commercial cards therefore sit in the most expensive interchange categories, meaningfully above a basic consumer credit card on the same sale. You cannot decline them selectively. A customer base that carries premium cards simply raises your average cost.
- How often do interchange rates change?
- About twice a year, normally in April and October, when Visa and Mastercard revise their published interchange tables. Changes tend to be category-specific rather than across the board, but they can move your cost without your processor touching your contract. If you are on interchange-plus, expect your effective rate to drift a little after each update. Your markup stays where it is.
- What is an interchange downgrade?
- A transaction settles into a more expensive interchange category than it qualified for at the point of sale. Common causes are settling a batch more than a day after authorization, keying a card without address verification, and missing purchase data on a commercial card. Batching on schedule is one of the easier fixes. It costs you nothing to change.