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 the largest single component of what you pay to accept cards — typically making up around two-thirds of the total bill — and almost no one in the industry takes the time to explain it clearly.

This is that explanation.

What interchange actually is

Interchange is a fee paid by your acquiring bank (the bank behind your processor) 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.

Visa and Mastercard act as the network that facilitates this transfer and set the rates. They publish their interchange schedules publicly — Visa updates its U.S. schedule every April and October, Mastercard does the same. The schedules run to dozens of pages and list hundreds of 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?

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 always 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, you have no way to decline rewards cards from a network you already accept, and you cannot charge a different rate to customers who use them (in most states and most use cases). You absorb the higher interchange cost, and the cardholder gets the points.

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 always 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 unlock significantly 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

The most transparent pricing model available is interchange-plus: you pay the actual interchange cost for each transaction, plus a fixed markup from the processor. The markup is the processor's margin, disclosed separately.

Under interchange-plus, when interchange goes down (as it periodically does in April or October), your costs go down automatically. Under a flat-rate or tiered model, that saving typically stays with the processor.