What Are Interchange Fees?

‍An interchange fee is the fee a merchant's acquiring bank pays to the customer's card-issuing bank every time that customer pays by card. The merchant covers it as part of their processing costs.

In the US, credit card interchange runs roughly 1.41% to 2.7% of the sale, plus a small fixed fee. It is the largest of the three fees on a card sale, alongside the card network's assessment fee and the processor's markup.

How interchange fees are calculated

A sale's rate comes from the card category, how the card was presented, and your merchant category code. Visa, Mastercard, Discover, and Amex publish the schedules those three things point to. Your acquiring bank charges what the schedule says.

Here's what each input does:

• Card category. A rewards or commercial credit card costs you more than a standard one, and US debit is regulated separately.
• Card-present or card-not-present. A remote sale carries more fraud risk, so it costs more.
• Your merchant category code. The code you're assigned sets the baseline.

Two shops can sell the exact same item and still pay different interchange on it.

Say a $100 card-not-present sale runs at a 2% rate plus a $0.10 fixed fee.

Interchange on that sale is $2.10. The network's assessment fee and your processor's markup are billed separately.

US credit schedules get republished twice a year, in April and October.

So a rate you budgeted around can change without you doing anything.

Why interchange fees matter for merchants

A chargeback costs you three ways at once, taking the sale, the interchange you already paid on it, and a chargeback fee on top. Only the sale amount comes back if you win.

Your acquiring bank pays interchange up front at authorization.

That can be weeks before anybody disputes the sale, and by then the money has already gone to the issuing bank. The reversal moves your revenue back to the customer, and the fee stays where it went. Our own chargeback fee breakdown covers the same problem on the processing side.

A dispute is the case where all three costs land at once. A sale that settles clean costs you interchange and nothing else.

Reducing interchange costs

Three fixes cut what interchange costs you, and each one works on a different part of the cost. Here's the set:

• Send complete AVS and CVV data at checkout. A sale with missing address or security-code data gets billed at a higher non-qualified rate.
• Ask your processor for interchange-plus pricing. It bills interchange at cost and shows the markup separately.
• Catch disputes early with chargeback alerts. Every dispute costs you the interchange you already paid, plus the sale.

For the first fix, turn on address verification and CVV capture in your gateway. Require both fields, and pass the full billing address rather than the ZIP alone.

Then call your processor and ask for the markup as its own line. Compare the per-transaction markup and the monthly platform fee separately. A processor can quote a low percentage and recover it in fixed fees.

The third fix is the one merchants leave alone longest. Alerts from Ethoca and Verifi reach you while the customer is still disputing. You can refund them directly and keep the sale out of your chargeback rate.

Our ROI calculator shows what the interchange you're not recovering on lost disputes costs you.

Set your billing descriptor to the storefront name customers saw at checkout, plus a support phone number. That costs nothing and stops disputes before they start, because customers dispute charges they can't place.

Rate-tier work and dispute prevention are separate jobs. Do them one at a time.

Interchange fee vs. processing fee

Your processing fee is the full amount you pay per sale, and Primer's analysis puts interchange at 70% to 90% of it. The rest goes to the assessment fee and your processor's markup. Three companies get paid on every sale:

Most statements show one blended rate instead of those three lines.

A blended rate is fine for budgeting and useless for diagnosis. When your rate goes up, one number can't tell you whether interchange rose or your processor's margin did.

FAQ

Are interchange fees negotiable?

No. Card networks set interchange and your processor passes it on, so the only part you can negotiate is their markup.

Do I get interchange back if I win a dispute?

No. Interchange is charged on the original authorization, so winning returns your revenue while the fee stays paid.

Does AVS lower my interchange rate?

Full AVS and CVV data qualify a sale for the lowest tier its card type allows. The schedule rate itself stays the same, so this prevents a downgrade rather than earning you a discount.

What happens to interchange on a refund?

Refunding a customer returns the sale amount. You keep paying the interchange charged on it, whether you refund voluntarily or lose a dispute.