Interchange Fees & Rates
What Every Small Business Needs to Know
Studying interchange fees can be a real snooze-fest—there’s no doubt about it. That's why so many small businesses sign up with a payment processor without knowing how interchange rates impact their overall processing costs. Which means they start taking debit and credit card payments without knowing the difference between a good and bad deal.
To us, that's intolerable. Why? Because when it comes to choosing the right payment processor, understanding interchange fees helps put you squarely in the captain’s chair. So let's buckle up and begin.
Interchange Rates and Fees:
What You'll Discover Below
Payment Processing 101
If you accept credit card payments, you can’t avoid interchange fees. But understanding how interchange fees and rates work can help you choose the best pricing plan for your business.
Want to know more about payment processing as a business owner? Click the button below to access our paymentprocessing guide.
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What Are Interchange Fees?
Interchange fees are fees charged for each credit or debit card payment a merchant receives, and they represent the largest portion of the credit card processing fees generated when your business accepts card payments (other credit card processing fees include card brand fees and payment processor markups).
Generally, the card networks determine what the interchange rate will be for any given transaction and update those rates on a semi-annual basis. The resulting interchange fee gets paid to the bank that issued your customer’s card (called an issuing bank). For Visa and MasterCard, the issuing bank is always a separate entity because neither company issues cards directly to consumers. Discover and American Express, however, are also card issuers.
Because interchange fees are set by the card networks, they don’t differ from payment processor to payment processor—they are simply part of the processor’s wholesale costs for processing the card payments a merchant receives. The only wiggle room processors have is in how they pass interchange costs onto merchants—either directly, as with an interchange plus pricing plan, or indirectly through tiered or flat-rate pricing models.
How Are Interchange Fees Calculated?
For most transactions, interchange rates take the form of a percentage multiplied by a merchant’s sales volume (in dollars) plus a per-item fee applied to each transaction.
For example, Visa’s CPS Retail interchange rate is currently 1.51% + $0.10. If your business processed 10 credit card transactions totaling $1000 at this rate, your interchange costs would be $16.10—1.51%($1000)+10($0.10)=$16.10.
Notice that your interchange costs would change if this $1000 in sales was spread out over more or fewer transactions. For instance, if you took in $1000 across 25 transactions at a rate of 1.51% + $0.10, your interchange fees would total $17.60 instead—1.51%($1000)+25($0.10)=$17.60.
Keep in mind, however, that you might not see interchange fees reflected directly on your monthly merchant statement—that depends on your payment processor’s credit card pricing structures. If you’re on an interchange plus pricing plan, your processor will pass interchange costs through to you directly and then add a separate markup on top of that (the “plus” in “interchange plus”), such that you can distinguish the interchange fees from the processor’s markups.
But if you’re on a flat-rate or tiered-pricing plan, interchange costs will be baked into the overall rates you pay. This is partly why merchants often have higher overall processing costs when they’re on a flat-rate or tiered pricing plan. The processor has to account for the way interchange fees fluctuate when it determines what your overall rates will be for any given transaction.
Not sure if you’re being charged too much? Learning how to pinpoint your credit card processing effective rate is a quick and easy way to monitor your monthly processing costs.
What Factors Influence Interchange Rates?
While the formula for interchange rates is consistent, the rates will vary based on a range of factors—each detailed below.
Because each card network determines its own interchange rates, interchange fees differ depending on the card brand your customer uses to pay.
Of the major card brands, Visa, MasterCard, and Discover tend to set fairly comparable interchange rates overall, but American Express has traditionally set higher interchange rates (which it calls discount rates) than its competitors.
Beyond the card brand itself, interchange rates will also vary depending on the card type used. Since credit cards generally pose a higher risk for issuing banks (since the customer might not pay off what is essentially a short-term loan), you can expect to see higher interchange costs for credit card transactions than for debit card transactions.
Payments made with rewards cards, corporate cards, and other special card types beyond basic consumer cards, also tend to carry higher interchange rates. This isn’t because these cards pose greater risks to issuing banks but because the higher interchange fees serve to cover the costs for all the perks cardholders get when they use these cards to make payment.
There are numerous ways to accept credit card payments, and different types of transactions pose different levels of risk for credit card networks and banks. For instance, card-present transactions—when your customer swipes, chips, or taps their card at a payment terminal—pose less risk of fraud than card-not-present transactions, and so they typically have lower interchange rates.
By contrast, card-not-present transactions—including manually keyed-in transactions, online credit card processing, and payments made over the phone or by mail—typically bring higher interchange fees because they pose a greater risks of fraud. The risk of customers deciding to dispute a payment (called a chargeback) also goes up when a payment is made without a physical card present.
The type of business you operate also plays a role in determining interchange fees. When you sign up with a payment processor, your processor will collect information about your business and assign your business a Merchant Category Code (MCC) that will influence the interchange rates that apply to the payments you receive.
Generally, this is a risk-based assessment. Online businesses and businesses operating in industries the card networks consider higher risk (such as alcohol sales, tobacco, pawn shops, and slew of others) can expect higher interchange costs and hence higher overall processing costs when they accept card payments.
Conversely, businesses such as supermarkets pose fewer risks of chargebacks and fraud and, in turn, reap the benefit of lower interchange costs overall.
Visa Interchange Rates
Below you’ll find tables highlighting some of the common interchange rates for Visa, MasterCard, and Discover, starting with Visa. We’ve included different card types and transaction types to give you an idea of how these factors affect interchange rates. Keep in mind, though, that factors such as your type of business can influence these rates as well.
The table below is not comprehensive, but it includes the most common Visa interchange rates for U.S. businesses. You can find a complete list of Visa’s current interchange rates at the company’s website.
Common Visa Interchange Rates
|
Card Type |
Interchange Rate (Swiped/Chipped) |
Interchange Rate (Keyed/Entered) |
|
Visa Debit CPS Retail (Regulated) |
0.05% + $0.22 |
0.05% + $0.22 |
|
Visa Debit CPS Retail (Exempt) |
0.80% + $0.15 |
1.75% + $0.15 |
|
Visa Debit CPS Restaurant (Regulated) |
0.05% + $0.21 |
0.05% + $0.21 |
|
Visa Debit CPS Restaurant (Exempt) |
1.19% + $0.10 |
1.15% + $0.15 |
|
Visa Credit Rewards Traditional |
1.65% + $0.10 |
1.95% + $0.10 |
|
Visa Credit Rewards Signature |
2.30% + $0.10 |
2.70% + $0.10 |
|
Visa Credit Rewards Signature Preferred |
2.10% + $0.10 |
2.40% + $0.10 |
Notice that Visa’s debit card listings include the terms “regulated” and “exempt.” These terms refer to the Durbin Amendment (15 U.S.C. 1693o-2), which caps interchange rates for debit card transactions. The Durbin Amendment applies to so-called “regulated banks” (banks with $10 billion or more in assets), while smaller banks with assets totaling less than $10 billion are exempt. Hence the terms “regulated banks” vs. non-regulated or “exempt” banks.
In general, this means you’ll pay lower interchange fees when your customers pay with debit cards issued by regulated banks and higher interchange fees when they pay with debit cards issued by non-regulated banks. You won’t be able to tell the difference between these types of debit cards at the point of sale, of course, but you might see the different rates displayed on your monthly processing statements if you’re on an interchange plus pricing plan.
MasterCard Interchange Rates
MasterCard mirrors Visa’s interchange rates and range of card types. Likewise, MasterCard’s rates for rewards cards will be higher than its rates for consumer cards, and MasterCard’s regulated debit cards have lower interchange rates than debit cards issued by non-regulated banks.
While this too isn’t a comprehensive list, a complete list of MasterCard’s current interchange rates is publicly available at their website.
Common MasterCard Interchange Rates
|
Card Type |
Interchange Rate (Swiped/Chipped) |
Interchange Rate (Keyed/Entered) |
|
MC Debit Retail (Regulated) |
0.05% + $0.22 |
0.05% + $0.22 |
|
MC Debit Retail |
1.05% + $0.15 |
1.65% + $0.15 |
|
MC Credit Consumer |
1.58% + $0.10 |
1.89% + $0.10 |
|
MC Credit Consumer Enhanced |
1.73% + $0.10 |
2.04% + $0.10 |
|
MC Credit World |
1.77% + $0.10 |
2.05% + $0.10 |
|
MC Credit World Elite |
2.20% + $0.10 |
2.50% + $0.10 |
As with Visa (and all U.S. card brands), payments made with MasterCard debit cards issued by regulated banks will have lower interchange rates than payments made with MasterCard debit cards issued by non-regulated banks.
Notice, though, that MasterCard only includes the term “regulated” in the names for its interchange rates. This simply means that if the term “regulated” is missing from the rate listing, the higher non-regulated or exempt interchange rate applies to the transaction.
Discover Interchange Rates
Slightly different from Visa and MasterCard, Discover issues most of its cards itself through Discover bank. So while Discover, much like Visa and MasterCard, charges interchange fees on each debit card and credit card transaction, those fees go directly to Discover rather than a third-party issuing bank.
Discover does not publish its interchange rates, but with a little research, you can figure out most of Discover’s most common interchange rates—we’ve done that for you below.
Common Discover Interchange Rates
|
Card Type |
Interchange Rate (Swiped/Chipped) |
Interchange Rate (Keyed/Entered) |
|
Discover Debit (Regulated) |
0.05% + $0.22 |
0.05% + $0.22 |
|
Discover Debit |
1.10% + $0.16 |
1.75% + $0.20 |
|
Discover Credit Consumer |
1.56% + $0.10 |
1.87% +$0.10 |
|
Discover Rewards |
1.71% + $0.10 |
1.97% +$0.10 |
Discover Interchange Rates for Recurring Payments
Since recurring payments function as card-not-present transactions, Discover sets slightly different rates for businesses that use recurring payment methods.
|
Card Type |
Interchange Rate |
|
Discover Debit Recurring (Regulated) |
0.05% + $0.22 |
|
Discover Debit Recurring |
1.20% + $0.05 |
|
Discover Credit Consumer Recurring |
1.35% + $0.05 |
|
Discover Credit Rewards Recurring |
1.35% + $0.05 |
What About American Express?
Like Discover, American Express doesn’t publish its discount rates (the AMEX equivalent of interchange rates), though you can cobble together some details if you do a little research online. We plan to explore American Express’s discount rates (their equivalent to interchange rates) on a future page to include in our collection of informational pages on payment processing.
For now, just note that American Express now provides two ways for merchants to accept AMEX card payments. The first, and the traditional approach, is to get a direct account with American Express for processing payments. American Express Direct is a requirement for merchants likely to process $1 million or more in American Express payments each year, and it carries higher costs for merchants generally.
However, smaller merchants processing less than $1 million American Express transactions each year have the option to use the American Express OptBlue program instead. OptBlue allows merchants to process American Express payments through a payment processor instead of a direct account with American Express, and with transaction costs comparable to (though still generally higher than) Visa’s, MasterCard’s, and Discover’s interchange fees.
Interchange Fees FAQs
No. Interchange fees are a non-negotiable part of the “wholesale fees” that apply to every card payment you accept, so interchange fees will figure into the overall processing rates you pay regardless of the payment processor you choose.
No. Neither you nor your payment processor have any power to negotiate, alter, or lower interchange fees, which means interchange fees don’t differ from payment processor to payment processor.
Interchange fees for credit card payments average around 1.8% of the sales. For debit card payments, the average is around 0.5%.
In a way. You can’t change the interchange rates that apply to particular transactions (those are set by the card networks and can’t be changed). But you can potentially reduce the interchange fees you pay if you’re on an interchange plus pricing plan and focus on doing your best to avoid transactions that carry higher interchange rates.
This includes avoiding keying in your customer’s card information as much as possible, accepting chip cards, or ensuring that your website’s payment page is properly set up to ask for detailed transaction information from your customers, such as your customer’s address, zip code, and the CVV number on the back of your customer’s card.
Interchange plus pricing is a pricing model that passes interchange and other card network fees directly to the merchant instead of bundling those fees into a pricing tiers or a flat-rate. The payment processor then tacks on additional fees (the “plus” in the interchange plus pricing model) to cover the costs of the services it provides.
Generally, interchange plus pricing is the most transparent pricing model, and it’s available from most payment processors that offer traditional dedicated merchant accounts for businesses.
Not directly, but processors and payment service providers (PSPs) that offer flat-rate pricing do factor interchange fees into the rates they set for merchants. That means that even though you’ll pay a flat rate for the payments you process, and this rate won’t change if the background interchange rates change for different transactions, the processor likely set the rate high enough to account for changing interchange costs in advance.
Tired pricing models put transactions into bundles or buckets (usually 3 or more) depending on the transaction type, and then charge different rates for each bundle. With a tiered pricing model, as with flat-rate pricing, the interchange fees associated with the payments you received don’t pass through to you directly, but the processor has already factored interchange costs into the overall rates you’ll pay. So, yes, in a sense you’ll pay interchange fees if you have a tiered pricing plan. You just won’t pay those fees directly as you would with an interchange plus pricing plan.
Apart from interchange fees, you’ll pay card network assessment fees and any fees charged by your payment processor for its services. Like interchange rates, card network assessment fees are set by the card networks and can’t be negotiated, but the processor’s fees (often called markups) vary from processor to processor.
