What is an interchange fee, and where do you actually save?

Every time a customer pays with a card, a fee called interchange comes off the top of that sale. It is the largest part of what you pay to accept cards, and it is the part most owners have never had explained to them. Once you understand it, the rest of your statement gets a lot easier to read, because you can finally tell the cost you cannot change from the markup you can.

What is an interchange fee?

Interchange is the fee the card-issuing bank charges to move money from your customer to you. When someone taps a Visa or Mastercard, their bank takes a small cut for carrying the transaction and the risk, and that cut is interchange. It is set by the card networks, Visa and Mastercard and the rest, not by your processor. Your processor collects it and passes it along to the network, which routes it to the issuing bank.

That last point is the one worth holding onto: no processor sets interchange, and no processor can waive it. Anyone who tells you they will get you below interchange is either confused or selling you something that is not real.

Who sets interchange fees?

Visa and Mastercard publish interchange rate tables, and they update them twice a year, usually in April and October. There are hundreds of rates, because interchange is not one number. It depends on the kind of card and the kind of sale.

A few things move your interchange up or down on any given transaction:

• Card type. A basic debit card carries low interchange. A premium travel rewards card carries much more, because the miles your customer earns are funded partly by that fee.
• How the card is taken. A chip or tap at the counter costs less than a number keyed in by hand or entered online, because a card-present sale is lower risk.
• Your industry matters too. Grocery and fuel, for example, get special interchange rates the networks set on purpose.
• And the data you send: larger B2B tickets can qualify for lower interchange when the right Level 2 and Level 3 detail rides along with the sale.

Interchange is the same wherever you take that card. A premium rewards card costs the same interchange at our company as it does at the processor down the street. The only thing that changes between processors is the markup on top.

What does interchange typically cost?

For a normal retail card mix, interchange plus the network assessments runs somewhere around 1.7 to 2.0 percent of volume, blended across all your cards. Card-not-present and rewards-heavy mixes run higher, debit-heavy mixes run lower. Common cards land roughly here, as published interchange, before anyone adds a markup.

Notice there is no single interchange rate. When a statement quotes you one tidy percentage for everything, that is not interchange. That is interchange with a markup folded in, blended so the two are hard to pull apart.

Why is interchange not where you save money?

Interchange is not where you save, because it is identical from one processor to the next, and that is the part the industry would rather you skip. Two processors quoting the same merchant are paying the exact same interchange to the networks. The difference in your bill is entirely the markup each one adds on top, and that is the only number worth shopping.

This is why we price the way we do. We pass interchange straight through at cost, then add one flat dime per transaction as our only markup, published on the page. There is no percentage stacked on your interchange, and no spread that creeps at renewal. The dime never goes up, and it can fall as your volume grows. The one charge beyond interchange and the dime is a yearly PCI compliance fee, billed once a year, and we show you the exact amount in writing before you sign.

You can lower interchange itself a little, by taking more chip and tap sales instead of keyed ones, by passing Level 2 and Level 3 data on B2B tickets, and by encouraging debit where it makes sense. We help with all of that. But the bigger, faster win is almost always cutting the markup, because that is the number that was never fixed to begin with.