What Are Interchange Fees?

Credit card interchange fees — also called interchange reimbursement fees — are what merchants pay to accept credit card payments. Like most business costs, these processing fees and merchant account expenses are rising

In this article, we’ll cover what interchange fees are, the average costs, the factors that affect them, and how they fit into different credit card processing rate plans.

What Are Credit Card Interchange Fees?

Interchange fees are the charges a merchant pays to the card-issuing bank whenever a customer uses a credit or debit card. They help cover fraud risk and the cost of moving the payment from the card network to your bank account.

What Do Interchange Fees Look Like?

Rates vary depending on the card type, how it’s used, and even the issuing bank. Here’s a simple example:

These numbers are just examples. In the U.S., average debit card rates are around 0.3%, and credit card rates average about 1.8% for most transactions, but the actual fee for any transaction depends on the card, network, and merchant category.

What’s The Average Interchange Fee?

Average interchange fees differ by card brand. Here’s a typical range for the four major credit card networks:

• Mastercard: 1.15% to 2.50%
• Visa: 1.15% to 2.40%
• American Express: 1.43% to 3.30%
• Discover: 1.40% to 2.40%

Keep in mind, these are averages across all possible rates. Your actual interchange costs may be higher or lower depending on your transactions and merchant account.

Tracking your own interchange over time is the best way to get an accurate picture, and how easily you can break out these costs depends on your processing plan.

For a deeper dive into interchange fees and other processing costs, check out our guide on credit card processing fees and rates.

Transactional Factors Affecting Your Credit Card Interchange Rates

Interchange rates for a specific transaction depend on factors that reflect the issuing bank’s risk. Here’s a look at the main influences:

• Debit vs. Credit Cards: Credit cards cost about six times more than debit cards because debit transactions are simpler and less risky. Flat-rate or tiered plans may eliminate these savings.
• Card-Present vs. Card-Not-Present: Transactions where the card isn’t physically present (e.g., online, mail order, keyed-in) are riskier and usually carry higher interchange rates.
• Merchant Category Code (MCC): Fees can vary by business type (restaurants, gas stations, etc.). This is not controllable but good to know.
• Tokenization: Security features like tokenization (used in Apple Pay, Google Pay, and many processors) can lower interchange rates for card-not-present transactions.
• Rewards Cards: Cards with perks (cash back, miles) have higher interchange fees, especially on tiered pricing plans where they may be charged two to three times higher than qualified transactions.
• Credit Card Brand: Each network sets its own rates. American Express is usually higher, but programs like OptBlue make it more affordable for small businesses.
• Card Owner Type: Fees differ by cardholder type: individual consumers typically pay the highest rates, while businesses or government agencies usually pay less.

Who Pays Credit Card Interchange Fees?

Every time you accept a credit or debit card, interchange fees are part of your processing costs. These fees are paid by your processor to the card-issuing bank, with the processor keeping any extra as its markup. Interchange typically makes up about 80% of the total transaction cost, but this may vary based on your processor and plan.

Processors also pay a small assessment fee to the card network, but it’s a minor portion of overall costs.

How Credit Card Interchange Fees Are Calculated

Processors pay interchange fees and charge for their services, passing these costs onto merchants in different ways. Processors often call the fees they pay the “wholesale rate,” which is basically the interchange fee.

Processing rate plans generally follow two approaches: pass-through or blended.

Pass-Through Plans

• Includes interchange-plus and membership pricing plans
• Separates interchange from processor markup
• Costs fluctuate but are usually cheaper for established businesses
• You always know what your processor charges

Blended Plans

• Includes flat-rate and tiered pricing plans
• Combines interchange and processor markup into one fee
• Easier to predict but often more expensive overall
• Flat-rate can be good for small or seasonal businesses

Here’s a quick overview of how various processing rate plans treat interchange fees:

Here’s a comparison of possible rate quotes you might receive, what type of pricing plan they represent, and whether the wholesale interchange rate is included in the rate quote:

How To Use Interchange Rates To Get The Best Pricing

Interchange fees are unavoidable, but you can take steps to lower your processing costs:

• Switch to Pass-Through Plans: Interchange-plus and membership pricing usually offer the lowest rates.
• Use a PIN Pad: PIN debit transactions have lower fees than credit cards.
• Enable Tokenization: Adds security for card-not-present transactions and may lower fees.
• Consider Surcharging or Cash Discounts: Shift fees to customers or build costs into prices.
• Choose a Reputable Processor: Accepting cards usually boosts sales more than it costs.

If you’re starting out or thinking about switching providers, check out our list of the best credit card processors for small businesses.