If you've ever looked closely at a processing statement, you've probably seen the word "interchange." It's usually one of the largest line items on the bill — and it's almost never explained. Ask most merchants what interchange actually is and you'll get a blank stare. That's not an accident. And it's worth understanding.
What Is Interchange?
Interchange is a fee charged every time a card is swiped, dipped, tapped, or keyed. It's paid by your bank — called the acquiring bank — to the bank that issued the card your customer used — the issuing bank. The money moves through the card network (Visa, Mastercard, Discover, or Amex), which also publishes and enforces the rates.
In plain terms: every time a customer pays you with a credit or debit card, the bank that issued that card gets a cut of the transaction. That cut is interchange.
Interchange is not the processor's fee. It's a pass-through cost set by the card networks. Your processor collects it on their behalf and passes it along — but they didn't set it and they don't keep it.
Who Sets Interchange Rates?
Here's what most merchants don't know: your processor doesn't set interchange rates. Visa and Mastercard do. Processors are required to pass those rates through to you — the only question is how they structure their pricing and what they add on top.
Interchange rate tables are published publicly, but they're not easy reading. Visa alone has hundreds of interchange categories. Each one depends on the card type, how it was used, and what kind of business accepted it.
What Affects How Much You Pay?
Not all card transactions cost the same to accept. Interchange varies based on several factors:
- Card type. Rewards cards cost more to accept. When your customer earns airline miles or cash back on their Visa Signature card, someone pays for those rewards — and that someone is usually the merchant. A basic debit card will almost always cost less to accept than a premium travel rewards credit card.
- How the card was used. Card-present transactions — swiped, dipped, or tapped in person — carry lower interchange rates than card-not-present transactions (keyed-in orders or online payments). In-person transactions have less fraud risk, and the networks price accordingly.
- Your business type. Interchange is categorized by MCC — Merchant Category Code. Grocery stores pay different rates than restaurants, which pay different rates than HVAC contractors or e-commerce stores. Where you're classified matters.
- Transaction amount. Many interchange categories include both a percentage and a flat per-transaction fee. On small-ticket transactions, that flat fee can represent a disproportionately large share of your total cost.
Why Does This Matter for Your Processing Bill?
Understanding interchange is the foundation of understanding your entire processing cost — because most pricing models are built on top of it. Here's how the three main models work:
- Flat rate (Square, Stripe, PayPal): You pay one flat percentage on everything — commonly 2.6% + 10¢ per transaction. It's simple, but you're almost certainly overpaying on your lower-cost transactions. The processor keeps the spread between what you pay and the actual interchange rate. The more you process, the more that spread costs you.
- Tiered pricing (common with traditional banks and many ISOs): Transactions are bucketed into tiers — "qualified," "mid-qualified," and "non-qualified." This model was designed to look simple while obscuring the real cost structure. In practice, most transactions end up in mid- or non-qualified tiers, and the pricing can be significantly worse than it appears.
- Interchange plus (also called "cost plus"): You pay the actual interchange rate, plus a fixed markup from the processor. This is the most transparent model — you can see exactly what the network charges and exactly what the processor adds. For established businesses doing consistent volume, it's typically the most cost-effective structure.
If you don't know which pricing model you're on, you're probably on flat rate or tiered — and you're probably overpaying. Interchange plus is almost never the default offer, but it's almost always available if you ask.
The Bottom Line
Interchange is the foundation of your processing cost. Most merchants have never had it explained to them, which is exactly why processors profit from the confusion. Once you understand what you're actually paying — and why — you're in a much better position to negotiate a structure that works for your business.
That's exactly the kind of thing we walk through in a free merchant fee audit. We pull apart your statement, calculate your real effective rate, and show you what a better deal would look like — with the numbers to back it up.