Interchange revenue is the fee that a cardholder’s issuing bank earns on every credit or debit card transaction, set by the card network and deducted from the sale amount before the merchant ever receives payment. It is the largest component of what a business pays to accept cards, typically 70% to 90% of total processing costs. The merchant never sees the gross sale; the issuing bank takes its cut first, and what lands in the merchant’s account is the remainder minus a few smaller fees.
Who Collects It and Who Pays It
Four parties sit inside every card transaction. The cardholder pays. The merchant accepts the card. The acquiring bank, or payment processor, handles the merchant’s side. The issuing bank, the one that gave the cardholder the card in the first place, is the party that collects interchange.
Above all four sits the card network, Visa or Mastercard being the obvious examples. The network does not pocket interchange itself. What it does is publish the rate schedules that dictate exactly how much the issuing bank earns on each kind of transaction. Those schedules run hundreds of line items deep.
From the issuing bank’s side, interchange funds rewards programs, covers fraud losses, pays for the credit extended to cardholders who carry a balance, and keeps the authorization infrastructure running. From the merchant’s side, it is a cost baked into every sale before any profit calculation begins. And it is not negotiable: the networks set the rates, and no merchant, however large, can talk the issuing bank into charging less.
Where in the Transaction the Fee Is Taken
A card payment moves through authorization, clearing, and settlement. Interchange is collected at the end, during settlement.
Here is what settlement actually looks like. On a $100 sale with a 2% interchange rate, the issuing bank transfers the money through the network to the acquiring bank but keeps $2.00 for itself and forwards $98.00. The acquiring bank then deposits that net amount into the merchant’s account, minus its own fees. The merchant never touches the full $100.
This is why interchange is sometimes called invisible. It does not appear as a line item on the customer’s receipt, and depending on the pricing model the processor uses, it may not even appear as a distinct charge on the merchant’s monthly statement. It is simply money that was never there.
What Makes One Transaction Cost More Than Another
Interchange is not a single rate. It is a matrix, and the effective rate on any given sale depends on a handful of variables the card networks use to classify the transaction.
Card Type
This is the biggest driver. A basic consumer debit card processed through a PIN network costs the merchant far less than a premium rewards credit card. Rewards cards carry higher interchange because the issuing bank uses that revenue to fund cashback, airline miles, and other perks. Corporate and purchasing cards push rates higher still because they come with enhanced reporting features the issuing bank has to support. The spread on Visa’s published schedule runs from under 0.05% plus a flat fee on regulated debit to well over 2.5% on premium credit cards.1Visa. Visa USA Interchange Reimbursement Fees
How the Card Is Used
A card-present transaction, where the customer taps or inserts a chip, carries lower fraud risk than a card-not-present transaction like an online or phone order. The issuing bank prices that risk in, usually adding several basis points on card-not-present sales. PIN debit tends to be cheaper in percentage terms than signature debit, though PIN often carries a slightly higher flat fee per transaction, which matters for merchants with small average ticket sizes.
Merchant Category
The networks assign every merchant a category code, and that code influences which interchange tier applies. Supermarkets, gas stations, and utilities often qualify for lower preferred rates because they do high volume with low fraud and chargeback rates. Restaurants, hotels, and e-commerce merchants tend to sit in higher tiers.
Transaction Data Quality
For businesses that accept corporate or purchasing cards, the amount of data submitted with the transaction directly affects the rate. Networks recognize three data levels. Level 1 is basic: card number, date, total amount. Level 2 adds sales tax, customer reference number, and invoice number. Level 3 goes further, with line-item detail for each product or service.2Mastercard Gateway. Level 2 and 3 Data Submitting Level 2 or Level 3 qualifies the transaction for lower interchange because it reduces fraud risk and simplifies reconciliation for the issuing bank. B2B and government-facing sellers who ignore this are paying more than they need to.
Interchange Inside the Full Merchant Bill
Merchants often look at the total deducted from their sales and call all of it interchange. It isn’t. The total merchant service fee has three parts, each going to a different party.
- Interchange goes to the issuing bank. This is the largest piece, and the networks set it. The merchant cannot negotiate it.
- Network assessment fees go directly to Visa, Mastercard, or whichever network ran the transaction. These are small, usually a fraction of a percent of volume.
- Processor markup goes to the acquiring bank or processor for its services. This is the only piece a merchant can negotiate.
How clearly these three show up on a statement depends on the processor’s pricing model. Interchange-plus pricing itemizes each one, so a merchant can see exactly what Visa charged and what the processor added on top. Flat-rate pricing bundles everything into a single percentage, which is simple but tends to overcharge merchants whose actual interchange costs sit well below the flat rate. Tiered pricing sorts transactions into “qualified,” “mid-qualified,” and “non-qualified” buckets, and processors rarely disclose how transactions get sorted, which makes it the hardest model to audit.
What Regulation Caps It
Interchange in the United States is only partially regulated, and the line falls between debit and credit.
The Durbin Amendment, part of the Dodd-Frank Act passed in 2010, directed the Federal Reserve to limit debit card interchange to amounts “reasonable and proportional” to the issuing bank’s costs.3Board of Governors of the Federal Reserve System. Bank Profitability and Debit Card Interchange Regulation: Bank Responses to the Durbin Amendment The Fed implemented this through Regulation II, which caps debit interchange at 21 cents plus 0.05% of the transaction value for banks with $10 billion or more in assets, with an additional one-cent adjustment available for issuers that meet certain fraud prevention standards.4eCFR. 12 CFR Part 235 – Debit Card Interchange Fees and Routing (Regulation II) On a $50 debit card purchase at a regulated bank, the maximum interchange is about 24.5 cents. A credit card on the same sale might generate a dollar or more.
Banks with less than $10 billion in assets are exempt from the cap, and their debit interchange is typically several times higher. The Federal Reserve proposed lowering the cap to 14.4 cents in late 2023, but as of early 2026 that proposal had not been finalized.
Credit card interchange in the U.S. is not capped at all. The networks set those rates with no federal ceiling, which is why premium rewards cards can run 2.5% or more. The EU takes a tighter line: its Interchange Fee Regulation caps consumer debit at 0.2% and consumer credit at 0.3% of the transaction value.5EUR-Lex. Fees for Card-Based Payments European merchants consequently pay far less to accept cards than American ones do.
Refunds and Chargebacks
Interchange does not come back when a sale does. If a merchant refunds a $100 purchase, the issuing bank already earned its fee at settlement, and the refund is processed as a separate transaction with its own interchange category for credit vouchers.1Visa. Visa USA Interchange Reimbursement Fees In some cases the issuing bank collects a fee on the refund as well, or returns a portion of the original interchange at a reduced rate. The net effect is that a refunded sale can cost the merchant more than if the sale had never happened.
Chargebacks are worse. When the issuing bank reverses a disputed transaction, the merchant loses the sale amount, does not recover the original interchange, and gets hit with a separate chargeback fee from the processor, typically $10 to $50 per dispute. Merchants with high chargeback ratios can face raised processing rates or account termination.
What a Merchant Can Actually Do About It
Interchange itself is non-negotiable, but a merchant can influence which rates apply to its transactions. The most effective moves target the variables the networks use to set those rates.
- Steer customers toward debit where possible. Regulated debit interchange is a fraction of credit card interchange, and setting minimum purchase amounts for credit cards is a legitimate way to reduce the blended rate.
- Favor card-present processing. Chip and contactless transactions qualify for lower rates. E-commerce merchants should implement address verification and 3D Secure to qualify for better card-not-present rates.
- Capture and transmit Level 2 and Level 3 data on B2B and government sales. The savings on large transactions add up quickly.
- Settle daily. Most networks downgrade transactions to higher interchange tiers when settlement is delayed beyond a day or two.
- Ask for an interchange-plus quote. Merchants on flat-rate or tiered pricing can run the same months of transactions through both models and see which comes out cheaper.
None of these eliminates interchange. Combined, they shave basis points off the effective rate, and on high-volume businesses, basis points become real money fast.