This article is part of a larger series on Payments.
Interchange fees, sometimes known as “swipe fees,” are the costs merchants pay financial institutions and credit card companies to be able to accept and process credit and debit card payments. They are paid to customers’ card issuing banks (Chase, Bank of America, etc.) to cover the handling costs and risks associated with approving the card transaction.
These fees are one component of the cost of credit card processing, along with assessments (fees paid to card associations such as Visa and Mastercard) and markups (fees paid to third parties such as payment processors and merchant accounts—Square, First Data/Fiserv, etc.). Interchange fees are typically the highest of the three and non-negotiable.
Merchants are encouraged to know these fees to understand the cost involved in accepting different card brands and manage their expenses.
Current Interchange Fees & Rates
Click through the tabs below for a breakdown of common interchange fees for each card association.
The rates listed are for the US only. Other fees vary by country, with some countries having government-mandated caps.
How Do You Calculate Interchange Fees?
The credit card interchange rates and fees are set by the card associations (Visa, Mastercard, American Express, Discover, etc.), but they are not very straightforward. In fact, there are more than 300 different interchange rates out there. The particular interchange fee you pay depends on the card your customer pays with and the type of transaction you are processing.
Merchants generally don’t need to worry about calculating interchange fees as they are built in to the rates you pay to your payment processor. You will often see interchange fees applied as a flat fee plus a percentage: 2.6% + 10 cents, for example. Or, the processor will pass along the direct interchange fee with its markup.
Factors That Influence Interchange Fees
A few factors impact what you pay for interchange rates—the biggest, generally, is how you receive and process the credit card payment.
For most storefronts, the customer likely has the card in their possession and enters it into a payment terminal. This is a card-present (CP) transaction. But sometimes, the card isn’t physically available—you might enter the card manually or take payment over the phone, for instance. These, and all online transactions, are card-not-present (CNP) transactions. CNP transactions are inherently riskier, so they incur higher fees.
Rates may also fluctuate depending on how much information has been entered. To lower your rates, you want to provide as much information as possible to show that the transaction is legitimate and mitigate fraud risk. Use Address Verification Service (AVS) and include the authorization ID and order number when you settle the transaction. It’s also recommended to settle transactions within three days of the sale.
Other factors include:
- Merchant Category Code (MCC): Your MCC is based on the type of business you run. (Retail, supermarket, fuel, and travel businesses each have different interchange rates.)
- Type of card: There are different types of credit cards out there. Cards that offer lots of awards and benefits typically come with higher interchange fees.
- Card owner: Consumer, business, government, and nonprofit credit cards also come with their own interchange fees.
- Card association: Credit card associations set their own interchange rates, so there’s variability, which we’ll cover further down.
Interchange Fees: Frequently Asked Questions (FAQ)
How are businesses charged interchange fees?
Every time a merchant processes a credit card transaction—swipe, chip, or keyed-in—that merchant collects the money paid for their products or services. However, they also pay third parties some of that money (markup, interchange, and assessment fees).
Typically, the payment processing systems are connected to the merchant’s bank (the merchant account), so the money is automatically withdrawn. You don’t have to pay interchange fees like you would a utility bill or standard invoice.
Each of the different card associations (Visa, Mastercard, Discover, and American Express) all have different interchange rates. Within each card association, there are hundreds of different possible rates for different consumer and business credit and debit cards, transaction types (card-present, keyed, and online), business types (retail, government, travel, etc.), and business sizes (businesses processing over $750 million can typically qualify for lower rates).
Can interchange fees be negotiated?
Strictly speaking, interchange fees are non-negotiable. However, if you process business credit cards (one business selling to another), the amount of data required for the transaction is significant in determining the interchange rate. These are known as Level 2 or Level 3 transactions.
The more data provided, the more secure the transaction is assumed to be—and the lower the rate becomes. It’s important to remember that while a business transaction may qualify for a Level 2 or 3 rate, it will be charged as Level 1 (generally associated with consumer purchases) if you do not provide the required information.
See if you qualify for Level 2 or Level 3, or B2B payment processing—one of the only ways for small businesses to lower interchange fees.
Can you avoid interchange fees?
You may have heard of free credit card processing, but these methods do not truly eliminate your card processing fees, especially interchange fees. Free credit card processing, or zero-cost processing, essentially allows businesses to pass along their card processing cost to consumers. However, not all states consider these methods legal, and some consumers may avoid businesses that implement them.
Find out if free credit card processing is right for your business in this guide.
Interchange rates might be pesky, but they’re necessary. And while mostly out of your control, understanding what interchange fees are will help you to find the most affordable overall rates and keep more for your profit. To calculate what processor will provide the lowest rates for your business, check out our guide on the cheapest credit card processing companies. Or you can learn how to accept credit card payments if you’re just starting out.