What is an interchange fee?

Interchange fees are one of many charges involved in processing credit card transactions. Here’s our Blueprint guide to how they work and why they’re necessary.

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Stax

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Monthly fee

$99

Swiped transaction fee

7¢ to 10¢ + interchange rate

Merchant One

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$13.95

Swiped transaction fee

0.29% to 1.55% per transaction

Payment Depot

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Customized Interchange+ Pricing – Rates as low as 0.2% – 1.95%

Clover

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$14.95

Swiped transaction fee

2.6% + 10¢

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Interchange fee definition

An interchange fee is a charge issued by credit card companies and paid by merchants as compensation for the risk and cost of processing a credit card transaction. Such fees are usually a percentage of the processed transaction or a flat fee per transaction. In turn, the merchant is guaranteed payment in the amount of the processed transaction.

How do interchange fees work?

Interchange fees — otherwise known as an interchange rate — are calculated as a percentage of the total transaction, plus a flat fee. The value is set by credit card networks. For example, Mastercard charges up to 3.5% plus $0.10 per transaction. However, across the major credit cards, the percentages tend to fall between 1.5% and 3.0% of the transaction. They make up the majority of the total fees involved in processing credit and debit card transactions.

Different types of cards and transactions have different interchange fees. The interchange fee reflects this difference in risk.

For example, a debit card often has a lower interchange fee than a credit card. This is because banks can verify the debit card user has the funds to cover the charge and reserve those funds for the purchase, a process that lowers the risk of the transaction. A credit card purchase, however, is a loan, which carries more risk; as such, it comes with higher interchange fees. In addition, an in-person card transaction carries lower fraud risk than a card-not-present (CNP) transaction, so in-person transactions come with lower fees. 

While interchange fees are inconvenient for merchants, paying them allows merchants to cater to the payment methods their customers use most — thereby improving the customer experience. As such, when merchants accept credit cards, their profits often increase as their sales do.

How are interchange fees charged?

When a credit or debit card is used to make a purchase, there are a few steps that must occur before the money transfers to the merchant, including:

1. The customer’s bank receives a request to authorize the payment by confirming that the funds are available. In turn, the bank confirms the funds are available and puts a hold on the required amount for the transaction, converting it to a pending payment.
2. Merchants send approved transactions in batches to their payment processor, often automatically at a set time daily.
3. The payment processor receives the processed funds from each issuing bank (or customers’ accounts). 
4. The payment processor deducts interchange fees and sends them to the credit card network’s bank (Visa or Mastercard, for example).
5. The remaining batch amount is then sent, in one lump sum, to the merchant’s bank via a bank transfer. 

The interchange fee covers the cost of handling the transaction, as well as compensating the cardholder’s bank for any potential fraud or bad-debt costs. 

What is interchange plus?

Interchange plus is a pricing model used by many payment processor companies. It’s when the credit card processor adds a markup onto the interchange rate charged by the credit card network to cover their services. Both fees are usually charged per transaction. 

Examples of interchange fees

Let’s go through some examples to better understand how interchange fees work:

Online retail purchase

An online retail purchase is an example of a CNP transaction, which presents an even greater fraud risk to the merchant service provider. Therefore, the fees involved in processing these transactions — including interchange fees — are greater. 

For example, if a customer uses a Visa credit card, for which the rate is around 1.5% plus $0.10, and the merchant accepts the payment through Helcim, a credit card processor which charges 0.5% plus $0.25 per transaction (the rate for online merchants that process under $50,000 a month in transactions), the total fee is 2% plus $0.35. Let’s assume the transaction value was $200. The merchant would pay a total fee of $4.35 to process the credit card payment.

In-person restaurant bill

When the card is present, the risk of fraud is lower, so the associated fees are usually lower. However, keep in mind that different industries must pay different interchange rates. 

In this example, a restaurant issues a customer a bill of $200 using the same Visa card, the interchange rate is now 2.2% plus a minimum of $0.08 (applicable to restaurants). However, Helcim’s fee for in-person transactions is lower, at 0.4% plus $0.08, so the total fee charged to the merchant is 2.6% plus $0.16 or $5.36.

What factors affect interchange fee rates?

Interchange rates can vary depending on a range of factors, including:

• The card network: Visa, MasterCard, American Express and Discover all set their own interchange rates, so the applicable rates depend on the card the customer uses.
• The card type: Credit cards have higher interchange rates than debit cards because the credit card issuer is lending money to the customer, therefore the risk is higher.
• The transaction type: With CNP transactions, the absence of the card means the likelihood of fraud is higher, so banks charge more fees to compensate for the risk.
• The card program: Premium credit cards — such as those with rewards, airline miles or cashback benefits — cost more for the issuer to maintain. These added costs are handed down in the form of higher interchange fees.
• The merchant’s industry: Rates often vary by industry. As in the example above, Visa charges different rates for restaurants than it does for other forms of retail.

Latest interchange fee rates by merchant in 2023

CREDIT CARD NETWORK	AVERAGE INTERCHANGE FEE
Mastercard	0.00% + $0.10 to 3.15% + $0.10
Visa	0.00% + $0.75 to 2.4% + $0.10
Discover	1.55% + $0.05 to 2.55% + $0.10

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Mastercard

Mastarcard offers five card programs, including its Core consumer credit cards, as well as Enhanced, World, World High Value and World Elite cards. It also offers different interchange rates depending on the industry and transaction type. For example:

• Key-entered transactions: 1.95% plus $0.10.
• Service industries transactions: 1.15% plus $0.05.
• Supermarket base transactions: 1.45% plus $0.10 and 1.15% to 1.22% plus $0.05 (depending on the supermarket tier).

Visa

Visa offers four different fee programs, including one that covers most of its products and separate programs for Traditional Rewards, Visa Signature/Visa Infinite and Visa Signature Preferred/Visa Infinite. Here are some of its rates for different types of transactions:

• Fuel transactions: 1.15% plus $0.25 (with a cap of $1.10).
• Restaurant transactions: 2.1% to 2.2% (plus a minimum of $0.04 or $0.08, depending on the tier).
• Nonqualified consumer credit transactions: 3.15% plus $0.10.

Discover

Discover offers a Core consumer credit program as well as programs for Rewards, Premium and Premium Plus. Here are some examples of its different interchange rate categories:

• Restaurant transactions: 1.9% to 2.45% plus $0.10.
• Card-not-present transactions: 2.55% plus $0.10.
• Key entry transactions: 2.50% to 2.55% plus $0.10.

Can businesses avoid or reduce interchange fees? 

The only way businesses can avoid interchange fees is by not accepting card payments. If a company accepts card payments, however, it cannot avoid interchange fees. However, you can try to reduce how much you pay in interchange fees by steering your customers away from online transactions and credit card payments and instead encouraging in-person payments in cash or with a debit card. 

Just keep in mind that limiting your customers’ options runs the risk of driving business away as you remove levels of convenience.

Additionally, you could implement a credit card surcharge to pass the costs onto your customers but, again, this comes with the risk of losing business as a result of the increased costs. In addition, passing on such fees to your customer is illegal in some states. However, some businesses get around this by framing it as a discount for customers who pay in cash, if possible, which is legal in most states.

You might also consider switching to an interchange-plus plan if you’re not already on one. These plans offer a transparent and often lower processing rate than other pricing plans. Read our list of best credit card processing companies to find one that fits your preferred pricing model and budget.

Featured credit card processing offers

Stax

Learn More

Via Stax’s website

Monthly fee

$99

Swiped transaction fee

7¢ to 10¢ + interchange rate

Merchant One

Learn More

Via Merchant One’s website

Monthly fee

$13.95

Swiped transaction fee

0.29% to 1.55% per transaction

Payment Depot

Learn More

Via Payment Depot’s webiste

Free Trial

No

Offers

$0 Setup & No Cancellation Fees

Pricing

Customized Interchange+ Pricing – Rates as low as 0.2% – 1.95%

Clover

Learn More

Via Clover’s website

Monthly fee

$14.95

Swiped transaction fee

2.6% + 10¢

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