The Complete Guide to Interchange Fees and Rates

Interchange fees are the fees charged by card issuers to merchant acquirers for processing credit and debit card transactions. Merchant acquirers are the businesses that provide merchants with the ability to accept credit and debit card payments from customers.

Visa, Mastercard, and Discover all have their own interchange fee schedules that merchant acquirers must follow. American Express sets its own interchange fees, which are generally higher than those of the other card networks.

Interchange fees are typically a fixed percentage of the transaction plus a per-transaction fee. For example, a typical Visa interchange fee for a credit card purchase might be 1.51% + $0.10. This means that for every $100 purchase made with a Visa credit card, the merchant acquirer would pay Visa $1.61 in interchange fees. The merchant acquirer would then charge the merchant a percentage of the total transaction cost, which would include the interchange fee, as well as any other fees associated with processing the transaction.

What Determines Interchange Fees?

Several factors go into setting interchange fees, including:

• The type of card being used (e.g., credit, debit, or prepaid)

• The card network (e.g., Visa, Mastercard, American Express, etc.)

• The card issuer (e.g., Chase, Bank of America, Citibank, etc.)

• The type of transaction (e.g., in-person, online, or over the phone)

• The cardholder’s country of residence

In general, credit card interchange fees are higher than debit card interchange fees. This is because credit card transactions are considered to be riskier than debit card transactions. Credit card issuers are also able to charge higher fees because they typically offer rewards programs, which give cardholders an incentive to use their credit cards more often.

How Interchange Fees Affect Merchants

Merchants are charged interchange fees by their merchant acquirers every time a customer pays with a credit or debit card. These fees are typically passed on to the customer in the form of higher prices.

In recent years, interchange fees have come under scrutiny by merchants and lawmakers. Some argue that interchange fees are too high and that they put an unfair burden on businesses. Others argue that interchange fees are necessary to cover the costs associated with processing credit and debit card transactions.

In the United States, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 placed limits on interchange fees charged by debit card issuers. As a result of this law, debit card interchange fees are now capped at $0.21 + 0.05% of the transaction amount. Credit card interchange fees are not currently regulated in the United States.

In Europe, the European Commission has been investigating interchange fees since 2009. In 2015, the Commission issued a decision that capped interchange fees for credit and debit card transactions at 0.3% and 0.2% respectively. These caps went into effect in June of 2016.

What Are Interchange Rates?

In addition to interchange fees, merchant acquirers also charge merchants a percentage of the total transaction cost, which is known as the interchange rate. The interchange rate is typically a few percentage points higher than the merchant discount rate, which is the fee charged by the acquirer for processing card transactions.