What Are Interchange Fees? How Card Swipe Costs Are Set

On this page 8 sections

1. What Are Interchange Fees?
2. Who Sets Interchange Fees and Who Collects Them
3. Why Rewards, Business, and Debit Cards Have Different Interchange Rates
4. How Card-Present vs. Card-Not-Present Changes Your Rate
5. Example: The Interchange on a $100 Sale
6. Ways to Qualify for Lower Interchange
7. How Cost Programs Fit Alongside Interchange
8. Next Steps

Key takeaways

• Interchange is paid to the cardholder's bank on every card sale and is usually the largest part of a processing bill.
• Card networks set interchange schedules. Your processor passes the cost through and adds its own markup.
• Card type, entry method, business category and transaction data all change the rate on the same sale amount.
• Clean processing habits and complete transaction data help sales qualify for the lowest rate they are eligible for.

What are interchange fees, and why are they usually the biggest share of your processing bill? This guide gives a plain-English interchange fee definition and explains who sets the rates and who collects them. It also shows why a rewards card tapped at your counter can cost a different amount than the same card typed into a virtual terminal, and it covers practical steps that help more of your sales qualify for lower interchange.

What Are Interchange Fees?

Interchange is a fee paid to the bank that issued your customer's card each time that card is used at your business. You never write a check for it. It is deducted from the sale before the funds reach your bank account, or it is billed on your monthly statement, depending on how your account is set up.

Every card transaction has three broad cost layers:

Interchange is normally the largest of the three. Your provider has no control over it. Your markup is negotiable. If you are still learning how these pieces fit together, our plain-English guide to merchant services covers the full chain from terminal to bank deposit.

Why Interchange Exists

The issuing bank takes on real costs and risks when it puts a card in a customer's wallet. It extends credit, absorbs some fraud losses, handles disputes and funds rewards programs. Interchange is the mechanism the networks use to pay issuers for that role. Whether the current fee levels are fair is debated in court and in state legislatures, but the basic flow has stayed the same: money moves from the merchant's side of the transaction to the cardholder's bank.

Who Sets Interchange Fees and Who Collects Them

The answer to "who sets interchange fees" surprises many owners. It is not your processor, and it is not the bank that collects the money.

• Card networks set the rates. Visa and Mastercard publish interchange schedules listing hundreds of rate categories.
• Issuing banks collect the fees. The cardholder's bank receives interchange on each sale.
• Acquiring banks and processors pass the fees through. Your provider's acquiring bank pays interchange to the issuer through the network, then recovers that cost from you along with its own pricing.

Visa Interchange Rates and Mastercard Interchange Schedules

Visa interchange rates and Mastercard interchange schedules are published documents that the networks update periodically. Each rate category usually combines a percentage of the sale with a small fixed per-transaction amount. The category a sale falls into depends on factors such as the card product, how the card was accepted, your business category and the data sent with the transaction.

Rates change from time to time, so check current published schedules or ask your provider for the categories that apply to your sales rather than relying on figures you saw elsewhere.

What About American Express and Discover?

American Express and Discover often act as both the network and the card issuer for many of their cards. Their pricing can therefore be structured differently from the Visa and Mastercard model. Ask your provider how those cards are priced and how they appear on your statement.

Interchange is also a live legal and policy issue. For recent developments, see our coverage of the swipe fee settlement heading to final approval and the Illinois Interchange Fee Prohibition Act. This article is general information, not legal advice.

Why Rewards, Business, and Debit Cards Have Different Interchange Rates

Two customers can each spend the same amount at your store and cost you different amounts. The card in their hand is often the reason.

The debit rules come from federal law and regulation. The details, including which issuers are covered, are specific legal terms, so confirm current requirements with your provider or a qualified professional.

You cannot choose which card a customer uses, and the card network rules your agreement includes may restrict how you steer customers between card types. You can, however, control how the sale is processed. That is where most savings opportunities sit.

How Card-Present vs. Card-Not-Present Changes Your Rate

Entry method is the second major driver. In general:

1. Chip (EMV) and contactless tap sales usually qualify for the lowest card-present categories. The card or mobile wallet is physically there and authenticated.
2. Swiped magnetic-stripe sales are still card-present but offer weaker fraud protection than chip or tap.
3. Online (e-commerce) sales are card-not-present. The issuer cannot verify a physical card, so these categories generally carry higher rates.
4. Keyed sales, where staff type a card number into a terminal or virtual terminal for phone and mail orders, are also card-not-present. They often fall into higher-cost categories, particularly when address and security-code data are missing.

Business category matters too. Your account is assigned a merchant category code (MCC) based on what you sell, and some categories have their own interchange programs. Your MCC must accurately describe your business. Requesting an inaccurate code to reach a lower rate violates network rules and can put your account at risk.

For a deeper look at the rules behind these differences, read card-present vs. card-not-present fees, fraud and rules and why online and keyed transactions cost more to process.

Example: The Interchange on a $100 Sale

The table below shows how card type and entry method can change interchange on the same $100 sale.

Illustrative only. The rates below are invented to show how the math works. They are not actual Visa, Mastercard or other network rates. Ask your provider for the rates that apply to your account.

Here is how to read one row. For the rewards card entered online, 2.40% of $100 is $2.40. Adding the fixed $0.10 gives $2.50 in interchange.

Network assessments and your processor's markup sit on top of that figure. Under the same illustrative assumptions, the gap between the cheapest and most expensive card on a single $100 sale is $2.10. Over thousands of transactions, your card mix and entry-method mix shape your effective rate as much as your contract does.

This is why pricing structure matters. On interchange-plus pricing, you see each sale's actual interchange plus a disclosed markup. On flat-rate pricing, the provider blends everything into a single rate. Our comparison of interchange-plus vs. flat-rate pricing walks through which model tends to suit which businesses.

Ways to Qualify for Lower Interchange

You cannot negotiate interchange, but you can avoid paying more than your transactions require. When a sale misses the requirements for its best category, it is often downgraded to a higher-cost one. The tips below are grouped by business type.

Retail Stores

• Have customers insert or tap at the counter. Avoid keying a card number because a chip read failed once. Retry or troubleshoot first, and replace aging card readers.
• Use a terminal that supports chip and contactless. Current smart terminals with built-in tap and chip handle both.
• Process returns as refunds to the original card where your policy allows. This keeps sale and refund records clean.

Restaurants and Bars

• Settle (batch) your transactions daily, ideally at close. Sales left unsettled for too long can downgrade.
• Keep the tip adjustment within a normal range of the authorized amount. A final amount far from the original authorization can affect qualification. See our guide to credit card tip adjustment and where it goes wrong.
• Use pay-at-table or handheld devices so cards are tapped or dipped rather than taken to the back and keyed.

E-Commerce Stores

• Send the billing address for address verification (AVS) and require the card security code at checkout.
• Make sure your gateway passes complete order data to the processor.
• Use tools like 3-D Secure authentication for online checkout to reduce fraud and disputes. Confirm with your provider how they affect your pricing and liability.

Professional Services

• Invoice clients through a secure online payment page rather than taking card numbers over the phone and keying them.
• For business and corporate cards, ask whether your setup can send enhanced transaction data (often called Level 2 and Level 3 data), such as tax amount, customer code and line-item details. Business card interchange is often designed to reward that extra data.
• Capture the full billing address on every card-not-present payment.

For Every Business

• Review your statement monthly and look for downgrade or "non-qualified" line items.
• Ask your provider to explain which interchange categories your sales are landing in and why.

How Cost Programs Fit Alongside Interchange

Some merchants prefer to offset card costs rather than only reduce them. Programs such as cash discount, dual pricing and surcharging (where permitted) let you pass some or all processing costs to customers who pay by card. Each program has its own disclosure and legal requirements.

MannyPay offers these options, including zero cost processing programs for eligible merchants, designed to help offset most or all card-processing fees. Eligibility, rules and results vary by business and state, so confirm the requirements before you change your pricing.

Next Steps

Interchange is set by the card networks and paid to issuing banks, and it is usually the largest piece of your processing bill. You cannot change the published rates. You can make sure your sales are processed in ways that qualify for the lowest categories they are eligible for, and that your provider's markup is clearly disclosed.

Pull your last few statements and look for downgrades, keyed sales that could have been chip or tap, and business card volume that could use enhanced data. If you spot a monthly non-compliance charge, our plain-English guide to PCI DSS compliance explains how to stop paying it. If you want a second set of eyes, request a free processing quote from MannyPay. A MannyPay specialist will respond within one business day to review your setup with you.

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About the author

MannyPay Editorial Team

Beyond the Swipe's editorial desk researches the publication's guides and news and cites its sources in every article. Articles reviewed by a named MannyPay editor carry that editor's byline.

This article is for general educational purposes and is not legal, tax or financial advice. Card network rules and state laws change; confirm current requirements for your business.