What is Credit Card Interchange?

Interchange fees can be expensive. They are the majority of the cost merchants pay to accept credit cards. Understanding this expense can help you make better financial decisions for your business.

What is the interchange rate?

Credit card interchange isn’t as straightforward as some might think. The rates can vary based not only on the card’s brand but also type, location, and mode of entry. When a merchant has a high volume of credit card sales, interchange fees can make tracking and predicting this expense very complex. Getting control of a budget that must allow for interchange means understanding first what you may be charged.

Interchange Fees are Costs that Get Passed Along to Merchants

Whose bill is it anyway?

One of your customers comes into your store and makes a purchase. They use their credit card to pay. The funds are transferred from their bank to yours. If the customer used a Visa brand credit card, then it is Visa who provides the service of making sure the funds get transferred. If it was a MasterCard, then it’s MasterCard who’s doing the behind-the-scenes work. Whichever brand of credit card your customer uses, the card brand who’s card it is charges for their service.

Your customer received his or her credit card from a bank, such as Wells Fargo or Bank of America. The card your customer used to pay wasn’t just a MasterCard, but a Bank of America MasterCard. Although MasterCard is the brand of the card, it was Bank of America who issued the card to the customer. Bank of America is the issuer in this case. When MasterCard charges the fee for the funds transfer, they charge your bank, the acquirer. Instead of keeping the proceeds, MasterCard uses the funds to pay Bank of America for its role as issuer in the transaction. These funds are called Interchange.

As a merchant, whoever you process your credit card sales through is billed interchange, whether that be your bank or a merchant services provider. Interchange is their bill for receiving funds, but they pass that cost along for you, the merchant, to pay. Nice, but does it end there? No. Some merchant services providers tack on an additional cost for their own profits. This enhanced rate is called Interchange Plus.

Interchange Rates Vary According to Credit Card Brand

How do the credit card brands make money?

Since credit card brands such as Visa and MasterCard charge acquirers interchange, it seem logical to assume that the brands keep at least a portion of those proceeds. And if you want to understand the difference between Visa and MasterCard’s interchange rates, first know that the brands don’t get their money through interchange. Instead, they charge what’s called a Network Fee.

Credit Card Network Fees 

The network fees that credit card brands charge are not a part of interchange. Instead, credit card network fees are how Visa, MasterCard, Discover, and American Express profit from merchant services. The PDF to the right features the various network fees for all the major card brands. Notice that these fees are small in comparison to interchange fees. The network assessment fee for most brands is 0.13%.

PDF: Network Fee Schedule for Visa, MasterCard, Discover, and American Express

What are Visa’s Interchange Rates?

The interchange pricing Visa charges varies according to several factors. It varies not only by the type of Visa card a customer uses, but also manner of entry, Visa CPS (Custom Payment Service). What is Visa CPS? It’s a set of guidelines Visa has laid out to let merchants know the criteria a transaction must meet in order to get the lowest rate. CPS may include factors merchants can control, but there are many factors that you can’t control, like the type of card a customer pays with. The card type, such as whether it’s a rewards card or a business credit card isn’t always apparent – sometimes even the customer doesn’t know what type of Visa they’re using!

What are MasterCard’s Interchange Rates?

Although MasterCard does not have CPS, there are still a variety of scenarios in which Interchange fees may vary. Like with Visa, MasterCard’s interchange fees depend on the card type as well as the location and type of transaction (such as keyed entry vs. swiped), as well as the merchant’s industry. Though it may be helpful to understand the differences between MasterCard and Visa interchange rates, merchants generally cannot control which brand of credit card their customers use to pay.

There are Some Interchange Expenses Merchants can Control and Some They Can’t



Swiped vs. Keyed Entry

Initiating a transaction by swiping the card always costs less than keyed entry.

Settlement Timeliness

Delaying the settlement of your credit card sales maybe more costly than you think. It’s best to always ensure your batch is settled within the first 24 hours following the day’s sales. Not doing so causes all the transactions to be downgraded, forcing you to pay a higher rate that can be a full percentage or more over what you would pay for each and every sale.

Skip Skipping POS Keyed Entry Prompts

Your POS should generate a variety of prompts at each keyed entry transaction. These prompts cover rate-critical factors such as AVS (address verification service). Skipping the POS prompts can result in the transaction being downgraded to an even higher rate.



Brand of credit card

Your customer might pay with a MasterCard or they could use a Visa. They might use Discover or American Express. Each brand comes with a different interchange rate,

Type of credit card

If a customer uses their business credit card, then the transaction will cost you more than if they use a standard card instead. The same is true of rewards cards and even different rewards cards can have different interchange rates. Whether the card is prepaid also makes a difference.

Transaction grade

Although there are things a merchant can do to influence how a transaction is graded, there are many ways for card transactions to be downgraded unexpectedly. The higher volume of credit card sales you have, the more difficult it can become to watch the grade of each transaction.

Merchants Who Don't Want to Pay Interchange's Tiered Pricing Have Options


From flat rate credit card processing to Cash Discount, there are some cost-saving options for merchants who don’t like the unpredictable and often costly expense of interchange… 

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