Ask your processor why your rates are so high and they'll probably blame interchange. They're not wrong — interchange makes up 70–80% of what you pay to accept credit and debit cards. But most merchants have no idea what interchange actually is, who sets it, or why it varies so much from one transaction to the next.

Understanding interchange is the single most important thing you can do to take control of your processing costs.

What interchange is

Interchange is a fee paid by your processor to the card-issuing bank every time you accept a card payment. When a customer uses their Chase Visa at your register, a portion of the transaction goes to Chase as the bank that issued the card. That's interchange.

You never see this payment directly. Your processor pays it on your behalf and either passes it through to you (interchange-plus pricing) or absorbs it into a bundled rate that includes their markup (flat rate or tiered pricing).

The key point: interchange is not your processor's fee. It's the card-issuing bank's fee. Your processor has zero control over it.

Who sets interchange rates

Visa and Mastercard publish their interchange rate tables twice a year — typically in April and October. These tables contain hundreds of individual rate categories, each defined by a combination of factors:

  • Card type — consumer credit, consumer debit, rewards, corporate, purchasing, prepaid. Each has a different rate.
  • How the card was accepted — card-present (chip, tap, swipe) vs. card-not-present (online, phone, keyed). Card-present is cheaper.
  • Merchant category — supermarkets, gas stations, and utilities get lower rates than general retail. The card networks set special categories for high-volume, low-margin industries.
  • Transaction size — some categories have different rates for small-ticket transactions (under $15–$25).
  • Data quality — sending additional data (Level 2/3 for commercial cards, AVS for card-not-present) can qualify a transaction for a lower tier.

American Express sets its own rates separately from Visa/Mastercard. Discover follows a similar structure but with its own table.

Why your rate isn't one number

When a processor quotes you "2.6% + 10 cents," that's a blended rate — an average across all the different interchange categories your transactions might fall into. In reality, each transaction hits a different rate depending on the card type and acceptance method.

A non-rewards Visa debit card swiped in person might cost 0.05% + $0.22 (Durbin-regulated). A Visa Signature Preferred rewards card keyed online might cost 2.40% + $0.10. Both count toward your "average," but one costs eight times more than the other.

This is why your effective rate (total fees divided by total volume) bounces around from month to month. It's not your processor changing prices — it's your card mix shifting. A month with more rewards cards and online sales costs more than a month with mostly debit cards at the counter.

What your processor actually controls

Your processor adds a markup on top of interchange. On interchange-plus pricing, this is transparent — you'll see it listed as a separate per-transaction fee (e.g., 0.25% + $0.10 over interchange). On flat-rate or tiered pricing, the markup is hidden inside the bundled rate.

Your processor controls:

  • Their markup — the per-transaction fee above interchange
  • Monthly fees — statement fees, PCI fees, gateway fees, batch fees
  • Contract terms — length, early termination fees, auto-renewal

Your processor does not control:

  • Interchange rates — set by Visa/Mastercard
  • Assessment fees — small fees charged by the card networks themselves (typically 0.13%–0.15%)
  • Which interchange category each transaction lands in — determined by card type, acceptance method, and data quality

Why this matters for you

Understanding interchange changes how you approach your processing costs:

  • Stop blaming your processor for interchange increases. When Visa raises rates in April, your costs go up even if your processor didn't touch their markup. The question is whether your processor's markup is reasonable — not whether interchange is high.
  • Focus on what you can control. You can't change interchange rates, but you can influence which categories your transactions qualify for. Batching daily, using EMV chip reads, sending AVS/CVV data, and enabling Level 2/3 for commercial cards all push transactions into lower interchange tiers.
  • Compare processors on markup, not headline rate. A processor quoting 0.20% + $0.08 over interchange is cheaper than one quoting 0.40% + $0.12, regardless of what the interchange table looks like. The interchange is the same for both — only the markup differs.

The bottom line

Interchange is the wholesale cost of accepting cards. Your processor's markup is the retail premium on top. When you understand the difference, you stop chasing the lowest "rate" and start evaluating the one thing that actually varies between processors: what they charge above cost.