What Is Interchange?
Interchange is the fee a merchant's bank pays the cardholder's bank for each card transaction. Set by card networks like Visa and Mastercard, interchange is the largest component of card processing cost and is generally not negotiable.
Direct Answer
Interchange is the fee a merchant's bank pays the cardholder's bank for each card transaction. Set by card networks like Visa and Mastercard, interchange is the largest component of card processing cost and is generally not negotiable.
Direct Answer
Interchange is a fee paid between banks when a card transaction is processed. When a customer pays by card, the merchant's acquiring bank pays the cardholder's issuing bank a percentage of the transaction — and sometimes a small flat fee. Card networks such as Visa, Mastercard, and Discover publish the interchange rate schedules that define these fees.
How It Works
A card transaction connects several parties:
- Issuer — the bank that issued the customer's card.
- Acquirer — the merchant's payment processor.
- Card network — Visa, Mastercard, Discover, or American Express, which routes the transaction and sets interchange.
Interchange compensates the issuer for advancing the cardholder's purchase and taking on the risk of the transaction. The fee flows from the merchant's processor to the issuing bank and is the wholesale cost underlying card acceptance.
Key Points
- Interchange rates are set by the card networks, not by your processor, and are generally not negotiable.
- Rates differ by card type (debit, credit, rewards, business), transaction method (in-person vs. online), and merchant category code.
- Interchange is typically the largest single component of card processing cost.
- Networks update interchange schedules periodically, so the rate for a given transaction can change over time.
What Merchants Should Know
Interchange is a wholesale, pass-through cost. Your processor adds its own markup on top. The way that markup is applied — interchange-plus, flat-rate, or tiered — determines how transparent your pricing is. Interchange-plus pricing passes interchange through at cost and shows the processor's markup separately, which is why it is generally considered the most transparent model.
