The interchange fee is the fee that is set and collected by the card brand for accepting the particular credit card.
Each type of card transaction has a base fee that is charged to the merchant by the cardholder's bank.
Interchange isn't just one, constant rate, there are actually hundreds of varying rates that could apply to a given transaction based on several different factors such as the type of credit card the customer uses, how the transaction is processed (card-present versus card-not-present or online), and what kind of business you are. These factors will impact which rate you are charged by the card networks.
For example, swiping a credit card or using the chip will result in a lower rate than if you were to manually enter the card information on a website, this is because there is more inherent risk in the latter situation. The type of business you run and the industry it operates in can also affect the rate. For example, charities are eligible for lower interchange rates than restaurants are. Finally, customers get to choose from a wide variety of different types of credit cards, and transactions involving a basic cash back card will have a lower interchange rate than transactions processed with privilege or travel rewards cards.
When Does the Interchange Fee Apply?
The interchange fee will apply each time you process a credit card transaction. The fee that the processor will charge your business includes an interchange fee, a card brand fee, and their own margin in each transaction that you process.
Where Can I Find a List of Interchange Rates?
Visa, Mastercard, and most other card brands are now required make their interchange rates public. You can find breakdowns of interchange rates on our website at the links below.
Why Do I Need to Know What It Is?
Understanding the interchange rate, how it is applied, and how it can vary from transaction to transaction can help you make sense of your processing statement each month, especially if your processor uses Interchange plus pricing. Knowing more about the payment processing industry in general can help in understanding the service that processors are offering and, if need be, advocating for your business.
What Are Payment Processing Rates Made Up Of?
Let's take a common processing flat-rate of 2.9% + 30 cents. This fee, that is charged for processing a payment, is made up of three smaller fees that are combined to make up the final fee charged by your processor. These parts are:
Fee 1: Interchange Fee - The base fee to process the transaction. This fee changes depending on the type of credit card that was used by the consumer, your business's industry, and how you are processing the transaction (in person, keyed, online). For this example, let's say the Interchange amounts to 1.70% + 10 cents.
Fee 2: Card Brand Fee - A small fee that the card brand (Visa, Mastercard, AMEX, Discover) takes for each transaction. For example, a traditional Visa credit card that is used for a swipe transaction in the US has a 2.2Â¢ + 0.140 % card brand fee associated with the transaction.
Fee 3: Payment Processor Margin - The fee the payment processor takes for providing you with the ability to take payments and for the associated risk of underwriting merchant accounts. For this pricing example, the processor's margin would be 1.06% + 17.8 cents