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Demystifying Interchange Rates: Understanding How They Impact Credit Card Payment Processing

Understanding Interchange Rates

Interchange rates play a crucial role in credit card payment processing, yet they often remain a mystery to many merchants. In this blog, we will demystify interchange rates by explaining what they are and how they work. Understanding interchange rates is essential for merchants as they directly impact the costs associated with accepting credit card payments. By delving into the intricacies of interchange rates, we aim to equip you with the knowledge to navigate the world of credit card processing more effectively and make informed decisions for your business.  

What are Interchange Rates?

Interchange rates are the fees charged by the card networks, such as Visa, Mastercard, and Discover, to the merchant’s bank (also known as the acquiring bank) for each credit card transaction. These rates are set by the card networks and are non-negotiable for merchants. The interchange fees compensate the issuing bank (the bank that issued the customer’s credit card) for the cost and risk associated with processing the transaction.


Factors Influencing Interchange Rates

Several factors determine the specific interchange rate for each transaction:

Card Type

Interchange rates vary based on the type of card used in the transaction. For example, debit cards typically have lower interchange rates compared to credit cards.

Transaction Type

Different transaction types, such as card-present (in-store) or card-not-present (online or over the phone), carry different levels of risk. Card-present transactions are generally considered lower risk and may attract lower interchange rates compared to card-not-present transactions.

Industry Classification

The industry in which your business operates also affects interchange rates. Card networks categorize businesses into specific merchant categories, and interchange rates can differ based on the associated risks and costs associated with those industries. High-risk industries, such as travel or adult entertainment, often have higher interchange rates compared to low-risk industries like retail or healthcare.

Transaction Data

The data transmitted with each transaction can influence interchange rates. Key factors include the presence of address verification, card verification, and settlement timing. Providing accurate and complete transaction data can help ensure you qualify for the most favorable interchange rates.

How Interchange Rates Work

Interchange rates function on a wholesale level, meaning they represent the direct cost of processing a transaction for the merchant’s bank. The payment processor, acting as an intermediary between the merchant and the card networks, passes on the interchange fees to the merchant.

When a transaction occurs, the payment processor assesses the interchange rate associated with that specific transaction and adds its own markup or processing fee on top. This markup covers the payment processor’s operational costs, technology infrastructure, customer support, and other services provided.

It’s important to note that interchange rates are non-negotiable for merchants. The rates are set by the card networks and apply universally across all merchants. However, merchants can control the overall cost of credit card processing by selecting a payment processor that offers competitive markups and transparent fee structures.


Interchange rates are an integral part of credit card payment processing. By understanding what interchange rates are and the factors that influence them, merchants can make informed decisions about accepting credit card payments. While interchange rates are non-negotiable, selecting a payment processor with competitive markups and transparent pricing structures can help control overall processing costs. Equipped with this knowledge, merchants can navigate the credit card processing landscape with confidence, optimizing their payment acceptance strategies and effectively managing the costs associated with accepting credit card payments. As always, if you have questions, we are here to help. (866) 415-2636.

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