credit card statement
  1. The Helcim Blog
  2. Merchant Guides

The Interchange Fee: Your Questions Answered

Author Image

Miranda Russell | May 7, 2021

“The interchange fee is the fee that is set and collected by the card brand for accepting the particular credit card. We answer some common questions about the interchange fees that will help explain the payment processing rates merchants are paying. (Upda”
5 min read
Content

    There's a good reason why the interchange rate is one of the least understood aspects of credit card processing-interchange is complicated! When your business processes a debit or credit transaction, you already know that you will be charged a transaction fee for that purchase. However, you might not know exactly how that fee is determined and that it's actually made up of three different fees including your payment processors margin, the card brand fee, and the interchange fee.

    Calculating transaction costs in the payments industry can be complex, and even experienced merchants can have lingering questions about the interchange fee. Here are some common questions related to the interchange fee that can help you better understand the payment processing fees your business is paying.

    No monthly fees

    What are Interchange Fees?

    The interchange fee is the fee that is set and collected by the card brand for accepting the particular credit card.

    Each type of card transaction has a base fee that is charged to the merchant by the cardholder's bank.

    Interchange isn't just one, constant rate, there are actually hundreds of varying rates that could apply to a given transaction based on several different factors such as the type of credit card the customer uses, how the transaction is processed (card-present versus card-not-present or online), and what kind of business you are. These factors will impact which rate you are charged by the card networks.

    For example, swiping a credit card or using the chip will result in a lower rate than if you were to manually enter the card information on a website, this is because there is more inherent risk in the latter situation. The type of business you run and the industry it operates in can also affect the rate. For example, charities are eligible for lower interchange rates than restaurants are. Finally, customers get to choose from a wide variety of different types of credit cards, and transactions involving a basic cash back card will have a lower interchange rate than transactions processed with privilege or travel rewards cards.

    What Are Payment Processing Rates Made Up Of?

    Let's take a common processing flat-rate of 2.9% + 30 cents. This fee, that is charged for processing a payment, is made up of three smaller fees that are combined to make up the final fee charged by your processor. These parts are:

    Fee 1: Interchange Fee - The base fee to process the transaction. This fee changes depending on the type of credit card that was used by the consumer, your business's industry, and how you are processing the transaction (in person, keyed, online). For this example, let's say the Interchange amounts to 1.70% + 10 cents.

    Fee 2: Card Brand Fee - A small fee that the card brand (Visa, Mastercard, AMEX, Discover) takes for each transaction. For example, a traditional Visa credit card that is used for a swipe transaction in the US has a 2.2¢ + 0.140 % card brand fee associated with the transaction.

    Fee 3: Payment Processor Margin - The fee the payment processor takes for providing you with the ability to take payments and for the associated risk of underwriting merchant accounts. For this pricing example, the processor's margin would be 1.06% + 17.8 cents

    When Does the Interchange Fee Apply?

    The interchange fee will apply each time you process a credit card transaction. The fee that the processor will charge your business includes an interchange fee, a card brand fee, and their own margin in each transaction that you process.

    Where Can I Find a List of Interchange Rates?

    Visa, Mastercard, and most other card brands are now required make their interchange rates public. You can find breakdowns of interchange rates on our website as well as articles detailing new rate changes which happen every October and April.

    Who Determines the Interchange Fee?

    The interchange fees are set by the card brands (Visa, Mastercard, etc.) and each card brand will have different fees for their specific cards and individual industries. At Helcim, we share all the card brand interchange rates on our website for the sake of transparency. You can visit our website if you would like to see the interchange fee for Visa, Mastercard, Discover, or American Express.

    Why Should I care about the interchange rate of a given transaction?

    Understanding the interchange rate, how it is applied, and how it can vary from transaction to transaction can help you make sense of your processing statement each month, especially if your processor uses Interchange plus pricing. Knowing more about the payment processing industry in general can help in understanding the service that processors are offering and, if need be, advocating for your business.

    Can Interchange Fees be Negotiated?

    Interchange fees are determined by the card brand and cannot be negotiated. However, the card brands do periodically adjust the interchange fee and it can be useful to stay on top of any changes to avoid potential confusion on your statements. Visa and Mastercard will post announcements when they change the interchange fees, which usually occurs twice a year, in April and October.

    Even if your payment processor is offering flat rate or tiered pricing, interchange fees are the basis of this rate, and your processor is not able to negotiate the interchange portion of your payment processing fee.

    Why do Interchange Fees Exist?

    Interchange fees exist to let your business accept credit cards and enjoy the benefits associated with being able to process credit and debit transactions safely and securely.

    It's time to feel good about your payments

    Who am I Paying the Interchange Fee to?

    The interchange fee gets paid to the card-issuing bank for facilitating the transaction. Essentially what you are paying for is added security, fraud protection, and the authorization of your business's transactions in real-time.

    If the Interchange Fee is Variable for Each Transaction, Why Don't My Rates Change for Each Transaction?

    If your payment processor offers flat-rate pricing, then you will pay the same fee for each transaction you process. The benefit of flat-rate pricing is that it is easy to anticipate what each transaction will cost you because the rate always stays the same. Unlike interchange plus pricing, flat rate pricing means that if a customer uses a credit card that costs less to process you won't benefit from the lower interchange rate.

    Are Debit and Credit Interchange Fees the Same?

    The debit networks will have their own interchange fees for different cards the same way Visa and Mastercard have their own interchange fees. Debit cards often have lower fees compared to credit cards, but you will still pay a network fee to process a transaction. Check out the US PIN Debit Interchange Rates here if you're a US merchant, or the Interac Network Fees here if you're a Canadian merchant.

    Final Thoughts

    Ultimately, interchange fees are a part of doing business if you're going to be accepting credit cards, but the cost can be well worth it to get transactions authorized in real-time and increase your business's cash flow. Understanding why they are applied and the services they cover can help you make sense of your monthly statement and better understand the payments industry as a whole.

    It's time to feel good about your payments.

    Sign up instantly with no paperwork or commitments.

    Get started now

    Service with a :)

    We’re always willing to help.

    New to accepting card payments? We take the time to help you understand how it all works so you can make the best decisions for your business.

    • Speak to a real person
    • Get help fast
    • Experts you can trust
    • No commission = no pressure
    Show more

    Have us contact you.

    Contact name cannot be blank
    Business name cannot be blank
    Please provide a valid email address
    Phone number cannot be blank
    Time Preference cannot be blank

    The form was sent successfully!