Interchange Definition

Merchant Account Interchange Explained:

What is Interchange? An Interchange fee is a charge assessed on a card payment that serves as a card-issuing bank’s compensation for processing the transaction. Interchange is set by card networks like Visa, Discover, and MasterCard. These networks have different rates and collect different fees for different card types. For example, the fee charged for a debit card is different from a fee for a credit card, and a credit card that has a rewards program attached to it has a different fee than a credit card without rewards. All in all, there are well over 100 different rates that range from 0%-3% and are collectively known as “Interchange” fees. Merchant account providers usually mark their processing rates up above Interchange, either within a tiered pricing structure or through Interchange-plus pricing.

The average rate of Interchange is 1.79%. For each credit card sale, the Interchange fee is charged to the merchant then distributed to the bank that issued the customer’s card as well as a few other processing and routing networks. The only money Visa and MasterCard keep is the “Dues & Assessment” fee, which is usually fixed at 0.11% for all transactions.

Merchants should note that Interchange is not negotiable; the only portion of a processing fee that is negotiable is a provider’s markup above Interchange. A common promotional tactic among merchant services providers is to claim to offer a merchant “wholesale” or “interchange” rates, which is only partially true. These providers do offer Interchange rates, but almost always with an added markup on top of Interchange. If a processor allowed its merchants to process all transactions exactly at the Interchange rate, it would not ever make any money on the transaction.

Interchange Rate Video Explanation

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Phillip Parker is a former merchant services sales agent who believes the industry has been overrun by people who engage in fraud and deception in order to steal from hard working business owners. He created this website to help you avoid the bad players, save money on fees, and to get peace of mind with your merchant account. If you would like to help support his work, learn more about our cost reduction service. We can evaluate your statement, tell you exactly how much you're overpaying, and then help you dramatically reduce your fees with your current credit card processor. Looking to switch instead? See our list of the best merchant account providers.

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