What is an interchange rate and how is it calculated?

Interchange fees are charges paid by merchants through their payment acquirers to cardholders’ issuing banks whenever card transactions occur, covering payment authorization, fraud risk, bad debts, and processing costs. Alongside acquirer markups and card-scheme fees, they form the merchant discount rate and are estimated to account for 70–90% of card-processing costs. Rates, generally structured as a fixed amount plus a percentage of a transaction, are established and periodically adjusted by networks such as Visa and Mastercard and vary based on card type, network, transaction method, commercial versus consumer use, domestic or cross-border status, and merchant category. Card-not-present transactions, such as online purchases, typically carry higher rates because of increased fraud and chargeback risks, while in-person payments are usually less costly. Businesses can manage these costs by comparing processors, negotiating where transaction volumes permit, settling promptly, providing complete transaction data, reviewing statements, and choosing between transparent Interchange++ pricing or simpler blended-rate pricing. Regulation varies internationally but increasingly emphasizes fee transparency, competition, consumer protection, and limits on interchange charges.

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