How Is the Interchange Rate Charged?


Accepting credit card payments allows you to offer multiple payment options to your customers and grow your business. They are a quick and convenient way to make a payment in-store or online, especially when it comes to contactless payments. And, while credit cards are essential for every business, they do have one negative side: interchange rate.

What Is an Interchange Rate?

An interchange rate is a fee the merchant’s bank pays to the card-issuing bank for every credit or debit card transaction. Also known as a swipe fee, it is charged to cover the bank’s handling costs, fraud and bad debt costs, and for the risks associated with accepting credit card payments.

This fee is set by the credit card companies, such as Visa, Mastercards, and AMEX, and varies from one company to another. Apart from the company, many other factors determine the value of the interchange rate, such as type of transaction, type of card, location, levels of data, etc. Learn more about NFC Mobile Payments.

Understanding the Interchange Rate


The interchange rate is paid by the merchant for accepting credit card payments. It is charged by the card-issuing bank, credit card payment network (Visa or Mastercard), payment processors (the issuing bank or a third party), payment gateways, and the merchant’s bank. They all charge a small percentage of each credit card transaction plus a small fixed amount, e.g. 1.5% + 0.20.

This fee is paid to the card-issuing bank whereas card associations take a minor fee called “network fee” which is smaller, around 0.05%.

Interchange Rate Paid to the Card-Issuing Bank

The card-issuing bank charges this fee because it is the entity that advances credit to consumers and takes on the risk associated with credit card approval and transactions. Since they are the responsible ones, they collect the biggest percent of the fee charged.

But, how do these banks make a profit?

Most people think banks profit from charging late payment fees and interest to people who have fallen into credit card debt. Although there is some truth, most of their profit actually comes from charging interchange fees. Just think about it… Millions of people use credit cards for making payments each day and the bank charges a small fee each time they use their card. That would be something like charging 0.1% on millions of daily transactions…. And, that’s A LOT!

Interchange Rate Paid to Credit Card Networks

The biggest percentage goes to the card-issuing bank, but there is also a certain amount paid to credit card networks, such as Visa and Mastercard. Although these networks charge a minor fee of around 0.05% per transaction, they also collect a lot of money because there are millions of transactions made per day with cards issued by them.

Let’s say that 3-4 million people use Visa and Mastercard cards to make around $50 per day. $0.025 is charged per transaction, which means these networks collect $75.000 – $.100.000 per day. And, the actual number of people and transactions is far higher. So, imagine the networks’ profit per day, month, and year. No wonder Mastercard has made something over $8.1 billion in net revenue in 2019.

Interchange Rate vs Credit Card Processing Fees

As a merchant, you need to be aware that the interchange rate doesn’t make your credit card fees. It does make 70%-90% of them, but it’s only part of your processing fees. It’s because your payment processor and credit card company also get part of them.

The Interchange Rate Isn’t Static

We know that you know the interchange fees, but do you know that they aren’t static?

Banks and credit card networks regularly change the interchange rate based on the current value of money, costs of money transferring, and the risk associated. For example, Visa and Mastercard change their interchange rates twice a year, in April and October. That’s why you need to keep an eye on your transaction rate and check it regularly.

The Interchange Rate Regulation

You may or may not know that there is a special regulation for setting the interchange rate. It’s known as The Durbin Amendment and was introduced in 2010. This law limits the transaction fees charged by debit card issues upon merchants. After its passing, the interchange rate went from 1%-3% per transaction, which was around $0.44 on average, to $0.21 + 5% of the transaction amount.

This regulation was created because the interchange rate was too high and non-proportional to the card issuers’ costs. In order to cope with the reduced fees, some banks have implemented new fees and removed free services to prevent revenue losses.

How Is the Interchange Rate Calculated?

The interchange rate is set by the card-issuing company (Visa, Mastercard, AMEX, Discover) and paid by the merchant bank. It’s usually set on a semiannual basis, but can also be set annually, depending on the credit card company.

Every credit card company sets a different interchange rate, which depends on various factors. The rate is in the form of percentage with companies defining it as a flat rate plus a percentage of the sale’s cost.

Factors Affecting the Interchange Rate

Card Type

One of the factors that affect the interchange fee is the type of card used to make payment. Namely, debit card transactions have around 6 times lower rates than credit cards because they are much easier and safer to approve. This is because the funds come from the customer’s bank account and it’s simple to confirm that there is enough money for the transaction to complete.

On the other hand, credit card transactions require the card-issuing bank to extend the credit to the customer and then cover the cost of the transaction themselves. Another reason for higher fees is the higher chance of fraud, which is often nowadays.

Apart from these two card types, customers can also use rewards cards. These cards cover a part of the transaction cost, but in return have a higher interchange rate. Hence, while the customer pays less, you, the merchant, pay more for their perks.

Rewards cards especially affect your (the merchant’s) transaction fees if you are on a tiered pricing plan. This is because tiered plans usually consider these transactions as nonqualified, which is why their interchange rate is 2 or 3 times higher than that of qualified transactions.

Card Brand

Different credit card companies charge different interchange rates. For example, AMEX (American Express) is known for charging higher fees than Visa and Mastercard. That’s why it’s important to familiarize yourself with the fees associated with each credit card company before accepting it.

Transaction Type

There are two types of credit card transactions: card-present or card-not-present (CNP). The card-present transactions, a.k.a. POS transactions, have a lower interchange rate because they are less risky than CNP transactions. This is because when a card is used, its chip is scanned and either a PIN is entered or a signature is taken.

CNP transactions usually happen when the orders are taken online, via phone, email, or chat. They can also happen when there is a card, but the terminal can’t read it and you have to enter the card’s info manually.

Business Industry and Size

Another factor affecting the interchange rate is the size of the business and the industry it falls within. For instance, supermarkets pay higher interchange fees than gas stations. Moreover, larger businesses have lower interchange rates because they are big enough and powerful enough to successfully negotiate with banks and credit card companies.

Use of Address Verification Service

This service is used to confirm that the customer’s address and the billing address on file at the card-issuing bank are the same when processing CNP transactions. The AVS fee for this service is different depending on the payment processor used but it’s usually $0.05 – $0.25. While this service adds to the interchange fees, it also lowers them. However, its cost overweighs the reduced interchange rate.

Type of User

The interchange fee is also affected by the type of user. This refers to whether the cardholder is an individual, a business, or a government agency. The interchange rate here is determined based on the cardholder’s ability to pay back the purchase cost. As you may guess, businesses and government agencies have a low risk of not paying back the cost whereas individual consumers have a higher risk. That’s why they have a lower interchange rate.


Did you know that the interchange rate varies by country? Yes, it does!

As a matter of fact, the USA has the highest interchange rate because there’s no regulation on how much the banks can charge for the interchange fee. As a comparison, the interchange rate in the European Union is limited to 0.2% for debit cards ad 0.3% for credit cards.

The Processing Rate Plan

And, last but not least, the processing rate plan you choose affects your card’s interchange rate. To explain this better, let’s look at the common processing rate plans.

Common Processing Rate Plans

  • Flat-rate pricing – a simple pricing plan that charges only one of the possible rates. Its processing rates are easy to understand and calculate. However, it combines the interchange rate and the payment processor’s markup rate into a single rate so you can never know how much you pay in markup.
  • Tiered pricing – similar to the flat-rate plan but instead of paying one flat rate all the time, you pay according to how the transactions are rated: qualified, nonqualified, or mid-qualified. Regardless of which tier you use, the payment processor will make a lot of profit and you will pay a really high markup. To make things worse, the markup rate is combined with the interchange rate, so you never know how much you pay for each of them. Plus, you pay all account fees, PCI compliance fees, gateway fees, and other fees.
  • Interchange-plus pricing – the best plan for merchants processing a minimum of $5,000/month. This plan separates the interchange rate and markup rate. The interchange rate is passed through at cost and you save a lot on processing fees and debit card transactions.
  • Membership pricing – similar to the interchange-plus plan because it separates the interchange rate and the markup rate. However, this plan requires a monthly subscription fee instead of multiple account fees.

How to Lower Your Interchange Rate?

Let’s accept that there’s no way you can avoid the interchange fee. It’s part of credit card and debit card transactions. However, there are several ways to reduce it!

To lower your interchange rate, you can:

  1. Apply a surcharge – By applying a surcharge, you pass on the credit card processing fees. Keep in mind that you can do this whenever possible, as long as you follow the rules so that you stay compliant.
  2. Offer contactless payments – They offer the lowest interchange rates. Thanks to the Covid-19 pandemics, the contactless limit has increased, which allows you to accept more contactless transactions.
  3. Offer ACH payments – They are faster and more reliable than checks. Plus, they don’t have interchange fees like credit and debit cards do, which makes them more affordable for businesses.
  4. Be PCI compliant – PCI compliance means that your business follows the rules under the Payment Card Industry Data Security Standard. These rules are designed to protect sensitive credit card data. Businesses that are not PCI compliant pay a monthly non-compliance fee. Hence, if your business is PCI compliant, you will save on fees.
  5. Minimize CNP transactions – Card-not-present transactions require manual keying in, which is much riskier and, thus, has the highest interchange rate. That’s why you should avoid CNP transactions as much as possible.
  6. Encourage card-present transactions – These transactions are much less risky, so they have a lower interchange rate. That’s why you should encourage your clients to pay with a credit or debit card at your POS system whenever possible.
  7. Use Address Verification Services – As mentioned before, AVS checks if the cardholder’s address is the same as their address in the card-issuing bank. Since this service helps fight fraud, credit card companies reduce the interchange fees for transactions where AVS is used.
  8. Settle your batch daily – This allows credit card companies to classify your transaction in the correct interchange program, not in other programs that have higher interchange rates. To do this the right way, you must close your batch within one day of authorizing the transactions.
  9. Provide as many details as possible – By providing as more detailed data as possible, the interchange rate will reduce. There are 3 levels of data you can provide:
    • Level 1 includes account number, authorized amount, expiration date, CVV, and zip code.
    • Level 2 includes all data from level 1, plus sales tax ID, sales tax amount, and invoice number.
    • Level 3 includes all data from levels 1 and 2, plus shipping costs, discount, VAT, item description, quantity, units, and more.

The more details you provide about the purchase and card used for the transaction, the lower the risk is, with that the lower the interchange rate.

  1. Use 3-D Secure – 3D Secure, a.k.a. 3DS is a service offered by card brands to reduce the risk of fraud. This service involves authenticating cardholders before a transaction. By doing so, the risk of fraud is lower, which results in a lower interchange rate.
  2. Use an integrated payment system – This refers to accepting payments through various methods using one system. Using such system, e.g. a billing platform, reduces the risk of payment exceptions. And, the lower the risk is, the lower the interchange rate.
  3. Use an incentive-based payment – This type of payment calculates the credit card processing cost before the transaction is completed which allows you to offer another payment method with a lower interchange rate. Offering an alternative payment method also includes offering some incentives like a discount on the transaction, a coupon, or similar.


Whether you like it or not, the interchange rate is part of your business if you accept credit card payments. It’s a fact that no merchant wants to pay additional processing fees, but the profit you make by accepting credit or debit cards is much higher than the money you “lose” for paying the interchange rate. And, with all the tricks of lowering your interchange fee, it’s a real loss not to accept credit card payments.



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