The Complete Guide To Understanding Credit Card Interchange Rates & 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. If you need industry-specific payment processing, take a look at our top recommendations for restaurant credit card processors and retail credit card processors.

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.

Flat-rate pricing plans make your rate structure as simple as possible by only charging one of a very small number of possible rates. Your processing costs are predictable and easy to understand. However, this type of pricing also blends the interchange fee and the processor’s markup into a single rate, so you’ll never know exactly how much you’re paying in markup.

Popular payment service providers (PSPs), such as Square and PayPal, use flat-rate pricing. Our biggest gripe with this pricing plan is that most providers who use it charge the same rate for debit and credit cards. Under this approach, you’ll be paying far more to process debit card transactions than you would under an interchange-plus or membership pricing plan.

At the same time, PSPs usually don’t charge any additional fees to maintain your account, so it’s reasonable to expect them to recoup those expenses through your processing costs. Flat-rate processing is a good deal for businesses with a low monthly processing volume, but it can quickly become costly once your monthly volume grows above a certain amount (typically around $5,000 per month).

For most merchants processing at least $5,000 per month, interchange-plus pricing plans are usually the most transparent and affordable plans you can get. Interchange fees are passed through at cost, and your processor’s markup is fully disclosed in your rate quote. Yes, you’ll still have to pay all those pesky monthly and annual fees. However, the savings in processing costs will more than offset them as long as your processing volume is high enough. You’ll also save money on debit card transactions, as your cost will be based directly on the applicable interchange rate.

Also called subscription pricing, membership pricing is similar to interchange-plus in that it separates the processor’s markup from the interchange. The main difference is that your processor will charge you a single monthly membership fee instead of a multitude of separate account fees.

Some providers also eliminate the per-transaction percentage and just charge a flat per-transaction fee in addition to the interchange costs. However, the high monthly subscription fee means that this type of pricing will work best for established businesses with significant monthly processing volumes. You’ll want to analyze your potential costs carefully before signing up for this pricing plan.

With tiered pricing, you’ll get the worst of both worlds. Like flat-rate pricing, processing rates are simplified and somewhat predictable. Rather than pay a single flat rate every time, your transactions will be rated as either qualified or nonqualified. Some processors also use a mid-qualified tier. These tiers are structured to guarantee that the processor makes a profit regardless of the underlying interchange rate, so you’ll often be paying an unusually high markup.

To make matters worse, it will be nearly impossible for you to determine how much you’re paying in markup, as it’s blended in with the interchange fee. You’ll also have to pay all those account fees, gateway fees, PCI compliance fees, and other fees that merchants on a flat-rate plan don’t have to pay. Tiered pricing plans ensure maximum profit for your processor — at your expense. We don’t recommend them.

Interchange fees are set by the major credit card associations (Visa, Mastercard, American Express, and Discover). Each association publishes a schedule of fees that breaks transactions down according to categories such as card-present vs. card-not-present, business type, ticket size, credit card vs. debit card, and many others.

Interchange fees reflect the level of risk associated with the given transaction type. Fees for credit card transactions are particularly high because the issuing bank has to loan the funds to the consumer to complete the transaction and then hope that this loan will be fully repaid on time. Interchange fees must also be high enough to compensate for the costs associated with processing the transaction, in addition to a reasonable profit.

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.

The credit card associations determine the interchange fee schedules, and neither the cardholder’s issuing bank nor your merchant account provider has any control over them. Each credit card association has a different way of differentiating types of transactions, but the rates published by Visa and Mastercard are, on average, about the same. Rates published by American Express are generally higher than those used by Visa or Mastercard.

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.

Interchange fees are paid directly to the bank that issued the customer’s credit or debit card. Other costs of transaction processing include assessment fees, which are paid to the card association, and markup, which is either paid to the processor or split between the merchant account provider and its backend processor.

Interchange fees are set to cover the actual cost of transaction processing and ensure a profit. Higher interchange fees are charged for riskier transactions, with the bank keeping the extra money even if the transaction isn’t fraudulent.