What is interchange?

The plain-English definition

Every time a customer pays you with a card, a fee gets paid to the bank that issued that card — the customer's bank, not yours. That fee is interchange. The rates are set by the card networks (Visa, Mastercard, Discover), your processor pays it on every transaction, and passes the cost through to you one way or another. American Express runs its own model, but from your side of the counter it behaves the same way: a base cost your processor passes along.

Who actually keeps your fee dollars

When you pay, say, 3% on a sale, that money splits three ways:

• The issuing bank keeps the interchange — the largest slice. It funds their fraud losses, their risk, and yes, your customer's airline miles.
• The card network keeps a much smaller slice called dues and assessments — the toll for using the Visa or Mastercard rails.
• Your processor keeps whatever is left. That last slice is the markup, and it's the only part anyone can actually negotiate.

It's public — and there are hundreds of rates

Visa and Mastercard publish their interchange tables on their own websites. Anyone can look. The catch is that there isn't one interchange rate — there are hundreds of categories, and every transaction lands in one based on a handful of factors:

• The card itself. Debit is cheaper than credit. Basic credit is cheaper than rewards. Rewards is cheaper than corporate and premium travel cards.
• How it's accepted. A card tapped or dipped in person costs less than a card keyed in by hand or typed into a website, because the fraud risk is lower.
• Your business type. The networks assign different rates to different industries — grocery, restaurants, fuel, B2B.
• The ticket size. Most categories are a percentage plus a fixed per-transaction amount, so small tickets cost proportionally more.

The spread is bigger than most owners think

One real rule worth knowing: debit cards issued by large banks are capped by federal regulation at roughly 0.05% plus about 21 cents. Meanwhile a premium rewards or corporate credit card can carry interchange north of 2.5%. As an illustrative example, a $100 sale might cost about a quarter in interchange if it's a big-bank debit card tapped in person, and $2.50 or more if it's a keyed-in corporate rewards card. Same $100, same register, wildly different base cost. That spread is why your mix of card types matters more than any advertised rate.

Three facts to hold onto

• Interchange is the same for everyone. The corner coffee shop and the national chain pay the same published rate for the same category. No processor has access to "better interchange."
• Interchange is the floor. No processor can run your cards below interchange plus assessments without losing money. Any quote below a plausible floor is making the money back somewhere else.
• Interchange is not negotiable — markup is. When you shop processors, the only thing that actually moves is the slice on top.

So what can you actually do about it?

You can't change the rates, but you can influence which categories your transactions land in. Dip or tap cards instead of keying them in whenever possible. If you have to key in a card, enter the address and ZIP so the transaction verifies properly. Settle your batch daily — transactions that sit too long before settling can get downgraded to a more expensive category. None of this is dramatic, but it's free.

The bigger decision is the pricing model sitting on top of interchange — that's where flat rate, interchange-plus, and tiered pricing come in, and where the real dollars move. I've written up flat rate versus interchange-plus and the tiered pricing trap separately.

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