Interchange Fees: Understanding What They Are & How To Calculated Them

Sydney VaccaroBusinessLeave a Comment

Interchange Fees_ Understanding What They Are & How To Calculated Them
Interchange fees are charged to merchants whenever a customer uses a credit or debit card. This fee is to cover the fraud or bad debt that happens when approving payments.

Interchange fees come into play whenever a merchant accepts a debit or credit card. These fees help keep the payment ecosystem balanced. We will go over what interchange fees are, what other fees they are connected to, and more.

What is an Interchange Fee?

Interchange fees are charged to merchants whenever a customer uses a credit or debit card. This fee is to cover the fraud or bad debt that happens when approving payments. These fees are collected by the card network, but they do not keep the money. It is actually given to the issuing bank (the bank that issues the credit card to the cardholder). As Visa describes it, “these fees to balance and grow the payment system for the benefit of all participants.”

What is a Merchant Discount Fee?

A merchant discount fee also known as a merchant service fee may take into account the interchange fee, processing cost, fees for terminal rental, customer services, and other financial services. Merchants can negotiate fee with their acquirer. Acquirers can set their own fees. These fees may vary based on competition with other acquirers or the individual merchant.


Merchants can expect to pay a 1-3% of the transaction amount in the merchant discount fee. Some merchants try to counteract this fee by surcharging their customers. Surcharging is when the merchant adds the merchant discount fee on to the transaction amount if the customer uses a credit card. Surcharging is not always the best option. There are nine states that limit or prohibit surcharging. As well as customer experience may drop. Visa suggests taking into consideration the following factors before surcharging:

  • States prohibiting or limiting surcharging
  • Merchants are required to notify Visa and their acquirer 30 days prior to surcharging
  • Surcharging applies only to credit transactions in the U.S. and U.S. territories. Debit and prepaid cannot be surcharged
  • The surcharge must not exceed your cost of acceptance for the credit card
  • Disclosures must be provided at the point of entry and point of sale

How is the Interchange Fee Calculated?

Interchange fees are consistently monitored and adjusted in order to ensure that all parties of the payment process are treated fairly. If rates are too high it can result in retailers not accepting cards or pushing customers to pay with cash. If rates are too low, issuers won’t issue cards or take the risk.


What Factors Affect the Interchange Fee?

The interchange fee can change for merchants depending on how risky the transaction is seen. So there are a few different factors that cause this fee to change:

Card Present vs. Card Not Present

The type of transaction that takes place can change the cost of interchange fees. The ability to ask for a PIN or signature and the uses of EMV chip technology makes card present transactions more secure than online transactions.

Card Types

Debit cards are traditionally more secure because they require a PIN number at checkout. So different rates are charged for debit and credit cards. For example, Visa currently charges 0.05% + $0.21 for a debit card used at a supermarket and 2.10% + $0.10 for a credit card used at a supermarket.

Business Type

Depending on the size and industry of your business will determine how much the interchange fee will be. Larger companies may be able to negotiate a lower fee because they have more pull. The type of industry and the amount of fraud risk that comes with it may also affect this fee.

A Necessary Fee

Although this fee may seem like an unnecessary dip in revenue for merchants, it is necessary for accepting cards for purchases. It is important for merchants to be aware of rates for the business to make sure they are being charged correctly.