What are Interchange Fees?

Interchange is a fee paid by a merchant's bank (called the acquirer) to the cardholder’s bank (called the issuer) each time a credit or debit card transaction is processed. It’s a core component of how electronic payments work, and it helps cover the costs associated with fraud prevention, credit risk, and cardholder rewards programs.

Interchange fees serve several purposes:

• Compensate the issuing bank for risk, infrastructure, and services (like fraud protection and billing).

• Incentivize card issuers to issue cards and maintain secure payment networks.

• Facilitate rapid and secure payments between merchants and consumers.

These fees are set by the card brands (Visa®, Mastercard®, Discover®, and American Express®) and are periodically updated. 

Card Brand	Typical Review Months	Notes
Visa	April & October	Updates may include changes by card type, industry, or transaction method.
Mastercard	April & October	Often aligned with Visa for consistency across the industry.
Discover	Varies (annually or semi-annually)	Less frequent public updates, but partners are notified directly.
Amex	As needed (less transparent)	American Express uses a different fee structure (discount rate model), and changes are usually communicated to merchants individually.

Here's what happens during a typical card transaction

Interchange fees aren’t fixed; they vary based on several factors:

In general:

• Card-not-present (CNP) transactions, like online purchases, carry higher fees due to greater fraud risk.

• Rewards cards tend to have higher interchange fees to fund cardholder benefits.

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Interchange vs. Other Fees

It's important to distinguish interchange from other payment processing fees:

Many processors use Interchange Plus Pricing, where merchants see the true interchange rate plus a markup.

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Interchange Plus Pricing

Interchange Plus (aka “Cost Plus”) is a transparent pricing model. Merchants pay:

Interchange Fee (set by card networks) + Card Brand Fees + Processor Markup

Example:
If Visa's interchange is 1.80% + $0.10 and the processor markup is 0.30% + $0.05, the merchant pays:

2.10% + $0.15

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Tiered Pricing

Transactions are grouped into tiers (Qualified, Mid-Qualified, Non-Qualified) based on risk and card type. Merchants are charged a fixed rate per tier.

Tier	Rate Level	Typical Criteria	Examples	Impact on Merchant
Qualified	💲 Lowest	- Card-present (swiped or dipped) - Standard consumer credit/debit card -All required data captured (AVS, CVV) - Batch settled within required timeframe (e.g., 24 hrs.)	- Swiped Visa debit card - EMV chip transaction - Same-day batch close	Lowest processing cost
Mid-Qualified	💲💲 Moderate	- Rewards or business credit cards - Manually keyed with AVS completed - Delayed batch settlement	- Keyed-in rewards card with AVS - Corporate card swiped	Higher cost due to card type or data entry method
Non-Qualified	💲💲💲 Highest	- International or corporate cards without AVS - Manually keyed with no verification- Missing/incomplete transaction data - Late settlement beyond processor limits	- Keyed-in card with no AVS- International card keyed and batched late	Most expensive tier — avoid when possible

Example:

• Qualified: 1.70%

• Mid-Qualified: 2.50%

• Non-Qualified: 3.20%

The processor decides what tier a transaction falls into, not the card brands.

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 Flat Rate Pricing

You pay a single fixed percentage (and sometimes per-transaction fee), regardless of card type.

Example:
Stripe and Square charge something like:

2.9% + $0.30 per transaction

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Pricing Model Comparison Summary