What Are Interchange Fees?

An Interchange fee is a charge paid by a merchant’s bank (acquiring bank) to a cardholder’s bank (issuing bank). It is charged for every transaction a customer makes with his or her credit card.

The fee compensates the issuing bank for the benefits of accepting electronic payments and other transaction related costs.

Determining Interchange Fees

Interchange fees vary depending on

  • The type of credit card – Rewards cards have higher rates.
  • The payment brand – VISA and MasterCard have different rates. Both can be found at the end of this article.
  • The type of transaction – Transactions with a high ticket have a higher risk for chargebacks and therefore, have higher interchange fees.
  • The industry of the merchant – There are different fees for the hotel industry versus the restaurant industry.
  • Whether the cardholder is present or if the transaction is completed in a card-not-present situation

The fee is calculated using a percentage of the ticket price plus a flat fee, written like this:

5% + $0.10 – This would mean the bank is charging 1.5% of the ticket price, plus a flat fee of $0.10 per transaction.

Because the interchange fee varies from bank to bank, there is no single standard for a merchant’s interchange fees. However, it is typically understood that the fee is between 1 and 3 percent of a purchase.

How Interchange Fees Affect Your Business

Any merchant that accepts credit cards is affected by interchange fees. These costs should be taken into account when considering the cost of running a business.

When an issuing bank transfers a sale to an acquiring bank, the amount is slightly less than the original cost of the transaction – the amount subtracted from the sale is the interchange fee.

This affects merchants because the slightly smaller sale will also be deposited into the merchant’s bank account.

There is also an additional fee merchants have to pay, usually called the merchant fee. This is the cost of operating a merchant account, above interchange.

Because of the fees merchants must pay, it is important to understand interchange fees and recognize where these charges come from and which areas of cost can be controlled.

Current Interchange Fees

Interchange fees are different for each payment brand: