Interchange Fee

Simple definition
Fee that stores pay to banks for card transactions.
Expanded definition
A fee paid between banks for the acceptance of card-based transactions, often borne by the merchant.


When consumers pay with credit cards, an intricate system processes the transaction involving banks, card networks, and various fees. One of these unseen fees is the interchange rate, which influences the true costs behind every purchase. Understanding interchange sheds light on the inner workings of card payments.

What is an Interchange Fee?

An interchange fee is charged to merchants each time a customer pays with a credit, debit or prepaid card. These fees cover the card network's costs for facilitating transactions.

Rates vary based on factors like:

  • Card type - credit vs. debit
  • Merchant business - retail vs. restaurant
  • Transaction type - online vs. in-store
  • Rewards cards - regular vs. premium

While invisible to consumers, interchange directly impacts merchant payment expenses.

How Interchange Works

During transactions, issuing banks receive interchange as compensation from acquiring banks and processors, who in turn pass these costs to merchants through service fees. These charges occur on top of flat processing costs.

Optimizing Interchange Costs

Strategies like:

  • Accepting low-interchange debit over credit
  • Offering optimized checkout options for each card type
  • Qualifying transactions under best-rate categories
  • Using interchange optimization services

Can help merchants lower processing costs. Understanding interchange allows businesses to maximize savings.

The Bottom Line

Interchange comprises a major component of payment expenses for merchants. While a complex background process for consumers, demystifying these rates empowers merchants to reduce credit card acceptance costs.