Interchange Fees
Interchange fees are the transaction fees paid by the merchant's acquiring bank to the cardholder's issuing bank each time a credit or debit card payment is processed — typically the largest component of total payment processing costs.
Interchange fees are set by the card networks (Visa and Mastercard) and vary based on card type, merchant category, transaction method (card-present vs. card-not-present), and processing volume. They typically range from 1.5% to 3.5% of the transaction value for credit cards and are lower for debit cards.
Understanding interchange is critical for any business with significant payment volume because it directly impacts margin. Many processors use interchange-plus pricing, where the processor's markup is added on top of the actual interchange rate. Others use flat-rate pricing (like Stripe's standard 2.9% + 30¢), which bundles interchange and markup together.
Businesses processing over $1M annually should evaluate interchange-plus pricing, as the transparency often reveals savings opportunities. Key optimization levers include: ensuring correct merchant category code (MCC) classification, using Level 2/Level 3 data for B2B transactions, optimizing authorization rates to reduce declines, and negotiating processor markup separately from interchange.
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