Interchange is the largest component of credit card processing fees, but most merchants never see it directly. It flows from your processor to your customer's bank on every transaction — and understanding why it varies is the key to reducing what you actually pay.
What interchange fees are and where they go
When your customer swipes a Visa card, three parties get a piece of the transaction fee you pay: the card network (Visa or Mastercard), your processor, and the customer's issuing bank. The largest slice — typically 1.4–2.5% of the transaction — goes to the issuing bank as the interchange fee. Visa and Mastercard collect only the network assessment fee (0.13–0.14%), which is a fraction of interchange. Your processor adds a markup on top of both.
This three-party structure is why interchange is described as a "pass-through" cost — processors don't profit from interchange, they pass it through to the issuing bank. The confusion arises because flat-rate processors bundle interchange into a single rate, making it invisible. Interchange-plus processors show it as a separate line item.
Interchange compensates the issuing bank for three things: the float between when the customer charges the card and when the bank receives settlement (typically 2 days), the risk of fraud and chargebacks (the issuing bank is liable for fraudulent transactions under zero-liability policies), and the cost of running rewards programs. Premium rewards cards carry high interchange specifically because the bank needs the revenue to fund points, miles, and cashback programs.
How Visa and Mastercard set interchange rates
Both networks publish their complete interchange tables publicly — Visa's runs to 150+ rate categories; Mastercard's is similarly complex. Rates are updated twice per year (April and October for Visa). The networks set rates to balance merchant acceptance with issuer profitability: if interchange is too low, banks stop issuing network-branded cards; if too high, merchants stop accepting the network.
The networks do not negotiate interchange with individual merchants. Interchange rates are fixed for every merchant in the same category, regardless of volume. The only exceptions are the network's large merchant programs (Visa's Large Merchant Program, Mastercard's Merit I), which offer custom interchange rates to merchants processing over $1 billion annually — Walmart, Amazon, Target.
Why interchange rates vary: the 8 key variables
| Variable | Lower Interchange | Higher Interchange |
|---|---|---|
| Card type | Basic debit (0.05% + $0.21) | Visa Infinite credit (2.40% + $0.10) |
| Transaction method | Card-present, chip-read | Card-not-present (online/MOTO) |
| Merchant category code (MCC) | Grocery, gas stations (special rates) | General retail, services |
| Data quality | Level 2/3 data submitted (B2B) | Basic transaction data only |
| Transaction size | Small transactions (per-txn component dominates) | Large transactions (percentage dominates) |
| Settlement speed | Same-day settlement | Delayed settlement (3+ days) |
| Authorization quality | AVS match, CVV match | No AVS/CVV data (higher fraud risk) |
| Card issuer size | Large bank (Durbin-regulated debit) | Small bank/credit union (exempt debit) |
The Durbin Amendment: how Congress capped debit interchange
Before October 2011, debit card interchange averaged 1.14% per transaction — nearly identical to credit. The Durbin Amendment (Section 1075 of the Dodd-Frank Wall Street Reform Act) changed this by capping debit interchange at 0.05% + $0.21 per transaction for banks with over $10 billion in assets. A 1.14% rate on a $50 transaction = $0.57. The post-Durbin cap on the same transaction = $0.235. The amendment cut debit interchange by roughly 80% for regulated issuers.
The Durbin Amendment only applies to debit cards issued by banks with over $10 billion in assets (the "regulated" issuers — Chase, Bank of America, Wells Fargo, etc.). Debit cards from community banks and credit unions (the "exempt" issuers) are not capped and carry interchange of 1.0–1.8%. This creates a situation where a customer's debit card from a small credit union costs you more to accept than a Visa Signature credit card.
A significant Durbin development came in 2023 when the Federal Reserve proposed lowering the cap further to 0.04% + $0.14, with a new fraud-adjustment component of 0.017% per transaction. The rule was finalized in 2024 with implementation phased through 2025–2026. For merchants on interchange-plus pricing, this change will be visible as lower debit interchange line items.
Sample interchange rates: what you're actually paying
| Card Type | Interchange Rate | Cost on $50 Transaction |
|---|---|---|
| Visa debit (regulated, in-person) | 0.05% + $0.21 | $0.235 |
| Visa debit (exempt, in-person) | ~1.15% + $0.15 | $0.725 |
| Visa Traditional credit (in-person) | 1.51% + $0.10 | $0.855 |
| Visa Rewards credit (in-person) | 1.65% + $0.10 | $0.925 |
| Visa Signature Preferred (in-person) | 2.10% + $0.10 | $1.15 |
| Visa Infinite (in-person) | 2.40% + $0.10 | $1.30 |
| Visa Traditional credit (online) | 1.80% + $0.10 | $1.00 |
| Visa Infinite (online) | 2.70% + $0.10 | $1.45 |
| Corporate/purchasing card, Level 2 data | 1.90% + $0.10 | $1.05 |
| Corporate/purchasing card, Level 3 data | 1.45% + $0.10 | $0.825 |
Rates reflect 2026 Visa interchange schedule. Mastercard rates are similar. Amex sets its own interchange on co-branded cards and charges a separate "merchant discount rate" on proprietary cards.
How to minimize interchange costs
1. Switch to interchange-plus pricing
Flat-rate pricing (Stripe, Square) hides your interchange cost inside a blended rate. You cannot optimize what you cannot see. Interchange-plus pricing (Helcim, Payment Depot, Stax) shows your actual interchange per transaction, letting you identify which card types are costing the most and where optimization is possible. This is the foundational step — everything else is secondary.
2. Submit Level 2 and Level 3 data on B2B transactions
Corporate and purchasing cards qualify for interchange rates 0.5–1.5% lower than standard rates when merchants submit enhanced transaction data. Level 2 data includes customer code, tax amount, and invoice number. Level 3 data adds line-item detail (product codes, quantities, unit costs). Most B2B merchants leave this on the table because their processor doesn't automatically capture this data — ask your processor explicitly about Level 2/3 support.
3. Encourage debit at the point of sale
On a $100 sale, regulated debit costs $0.26 vs. $1.75–$2.50 for a premium rewards card. A merchant with 40% debit volume saves $1.49–$2.24 per transaction on those sales compared to a 100% rewards credit scenario. You can't stop customers from using premium credit cards, but offering a cash/debit discount (legal in all 50 states since 2018) creates an incentive without surcharging credit.
4. Settle transactions daily
Transactions that aren't settled within 24 hours of authorization can "downgrade" to a higher interchange rate category. A Visa Rewards credit card authorized but settled 4 days later might downgrade from 1.65% + $0.10 to 1.95% + $0.10. Restaurants are particularly vulnerable to downgrade because of tip adjustments — ensure your POS system settles all authorized transactions daily, even tickets with pending tips.
5. Verify AVS on card-not-present transactions
Online transactions that fail address verification (AVS) are treated as higher risk and may downgrade to non-qualified interchange rates. Always submit the billing zip code (at minimum) and encourage full AVS matching (street + zip). On an e-commerce site doing $30,000/month, the difference between qualified and non-qualified rates on 10% of transactions (AVS failures) can add $150–$400/month in unnecessary interchange cost.
See your actual interchange costs: Use our comparison tool to model costs at your specific volume and card mix — including debit vs. credit breakdown and the impact of switching to interchange-plus pricing.