Merchant Account Glossary:

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

Use of this video does not constitute an endorsement of any kind by CardPaymentOptions.com.

About Phillip Parker

Why I'm Qualified to Write About Credit Card Processing

I’m a small business owner who previously worked in the credit card processing industry. I started this blog in 2009 to help other business owners by exposing credit card processors that engage in unethical marketing, rate and fee trickery, and fine-print-contract schemes. Over the last decade, I’ve reviewed hundreds of merchant services providers which has helped to educate over 5 million businesses on the nuances of credit and debit card acceptance. I’ve appeared in the New York Times, Los Angeles Times, Inc. Magazine and a host of other publications to offer insight on the subject of card acceptance.

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