What Are Interchange Fees?

Credit card interchange rates vary widely due to a number of factors, and there are hundreds of possible rates that you might have to pay. Here’s a very generic example of possible interchange rates:

Common Interchange Rate Examples

The rates in the table above represent only the tip of the iceberg. In the United States, the average interchange rate is around 0.3% for debit cards and 1.8% for credit cards. However, we’d caution you that these numbers have very little value due to the enormous range of possible rates under which any given transaction might fall.

Interchange rates for credit cards are usually around six times higher than they are for debit cards. Why? Debit card transactions are much easier (and safer) to approve. Because the funds come directly out of the customer’s linked bank account, transaction approval is a simple process of confirming that there are sufficient funds in the account to cover the cost of the transaction. Be aware that you’ll lose out on these savings if your processor uses a flat-rate or tiered plan that charges the same rate for both credit and debit cards.

As you might imagine, accepting a credit card for payment will inevitably be riskier if the merchant never sees the actual card. eCommerce, mail order, and telephone order transactions will always be card-not-present, imposing greater risks to the issuing bank. You might also encounter a card-not-present transaction in a retail setting if your terminal can’t read a customer’s card and you have to key in the card information manually.

Interchange rates for card-not-present transactions are substantially higher than those for card-present transactions. In most cases, the total processing rate that your merchant services provider charges you will directly reflect the additional cost to process these types of payments.

Credit card associations also use merchant category codes to further break down their interchange fees according to business categories (i.e., restaurants, gas stations, general merchandise, etc.). It’s a good idea to familiarize yourself with the underlying interchange fees associated with your business category.

Unfortunately, this is one factor affecting interchange rates that you have little or no ability to control.

As card-not-present fraud has surged in recent years, processors and card associations have responded by offering new security features to prevent fraudulent transactions from getting through. Credit card tokenization is one of the most effective security methods for online transactions, and almost all major credit card processors now offer it. It’s also built into digital wallets like Apple Pay and Google Pay. The major credit card associations have recently updated their interchange fee schedules to charge a lower rate when tokenization is used — and a higher one when it’s not used. With almost all providers offering tokenization for no additional charge, there’s no reason not to implement it as part of your overall account security strategy.

In recent years, issuing banks have been offering rewards cards that come with perks, such as frequent flier miles or cash back on purchases. Guess who ultimately gets to pay for these perks? That’s right, you do!

Interchange fees will inevitably be higher if your customer pays with a rewards card. The use of rewards cards particularly impacts your processing costs if you’re on a tiered pricing plan. Tiered plans often downgrade these transactions to nonqualified, and the rates for these types of transactions are frequently two or even three times higher than those for qualified transactions.

Each credit card association sets its own interchange fees, so accepting one card brand might cost you more than another. In particular, American Express has often been singled out for criticism for charging higher fees than either Mastercard or Visa. However, Amex’s OptBlue pricing program now makes it much more affordable for small businesses to accept American Express cards.

Note that American Express charges a “discount rate” rather than an interchange fee, but it’s essentially the same thing. For more information on accepting American Express cards in your business, please see our guide on American Express’s interchange fees and rates.

Credit card associations also have separate rate categories that vary depending on whether the card owner is an individual consumer, a business or corporation, or a government agency. Variations in these rates are mostly based on the card owner’s ability to pay back the cost of the purchase. As you might imagine, purchases made by a government agency or private business are inherently less risky than those made by ordinary consumers and, thus, will have the lowest interchange fees.

The pass-through approach, found in interchange-plus and membership pricing plans, separates the interchange and the markup. With one of these plans, you’ll always know exactly how much of a cut your processor takes from a transaction, even if you don’t know the interchange rate in advance. While your processing costs will vary quite a bit due to variations in the interchange rates, established businesses with a stable month-to-month processing volume will usually save money overall with this approach.

On the other hand, the blended approach, found in flat-rate and tiered pricing plans, combines the interchange and the processor’s markup into a single charge. This approach usually leaves you with no idea how much of your processing fee is going to the issuing bank and how much to your processor. While the blended approach may make your processing costs more predictable, you’ll often end up paying more overall for processing with this approach.

Flat-rate pricing, however, can be much cheaper for small or seasonal businesses, as the companies offering this type of pricing often don’t charge any monthly or annual fees to maintain your account.

Interchange fees are set by the credit card associations (Visa, Mastercard, American Express, and Discover), not the issuing bank. Thus, fees for using a Bank of America Visa Credit Card will be identical to those charged for using a Wells Fargo Visa Credit Card. However, fees for using a Wells Fargo Mastercard will not be the same as those charged for using a Wells Fargo Visa Credit Card.

No. Interchange fees are established by the major credit card associations and are not subject to negotiation. Be very wary of any sales agent who promises to lower your interchange fees. While the total processing rate charged by your merchant account provider can be negotiated, your provider has to pay the published interchange fees to the cardholder’s issuing bank and cannot negotiate a lower rate for you.

Card-not-present and manually keyed-in transactions typically have the highest interchange rates. Also, any transaction where the customer uses a rewards card (e.g., a card that offers cash back or frequent flier miles for purchases) will have higher interchange rates. Note that in Canada and the European Union, interchange rates for credit and debit cards are limited by law. However, only debit card fees are similarly capped in the United States.

It’s not really possible to avoid interchange fees — they have to be paid whenever a credit or debit card is used. You can, however, pass the cost of interchange fees onto your customers through surcharging or cash discounting programs.