Understanding Interchange Rates: How Your Processing Fees Are Determined

What are Interchange Rates?

Interchange rates are a fundamental part of how credit card processing works. Essentially, they are the "wholesale cost" of processing a card transaction, determined by the major card brands: Visa, Mastercard, Discover, and American Express. These rates represent the fee that card networks charge banks for processing transactions on their respective networks.

Key Characteristics:

  • Non-negotiable: Interchange rates are set by the card brands and are the same for all merchants regardless of their processor.
  • Highly Variable: Hundreds of interchange rates exist, varying significantly depending on factors like:
    • Card Type: Credit cards generally have higher rates than debit cards. Rewards cards and premium cards often carry higher fees.
    • Processing Method: Swiped transactions typically have lower rates than keyed-in transactions.
    • Transaction Type: In-person, online, and phone transactions may have different rates.
    • Industry: Interchange rates can vary based on the specific industry your business operates in (e.g., healthcare,retail, restaurant).

How Interchange Rates Affect Your Costs

  • Interchange fees are passed on to merchants, along with any fees charged by your payment processor.
  • Interchange fees often represent a substantial portion of your overall processing costs.

Disclaimer: This article provides a general overview of interchange rates. The specific fees and factors that apply to your business may vary.