Glossary
What is an interchange fee?
An interchange fee is the charge a merchant's bank pays the card issuer on each card sale. See how it works, who sets it and what it costs you.
Updated · By PayToMe Editorial
An interchange fee is the amount a merchant’s bank (the acquirer) pays the bank that issued the customer’s card (the issuer) every time a card payment is made. It is usually a percentage of the sale plus a small fixed amount, and it is the largest piece of what a business pays to accept cards.
How it works
When a client pays an invoice by card, three costs are bundled into the single fee you see on your statement:
- Interchange, paid to the issuer. It funds fraud losses, rewards and the cost of lending.
- Network assessments, paid to the card network for running the rails.
- Processor markup, kept by your payment processor for its service.
Interchange rates are set by the card networks and published as tables. The rate depends on factors such as the type of card (debit, credit, rewards, business), whether the card was present, and how much data accompanies the payment. Online and keyed-in payments usually cost more than chip-and-PIN in person because the fraud risk is higher.
Some processors pass interchange through at cost and add a visible markup. Others quote one flat rate and absorb the variation. Neither is automatically better. It depends on your average ticket and card mix, so compare the effective rate you pay, which is total fees divided by total card volume.
Example
Suppose you send a $2,000 invoice and the client pays by card. The numbers below are illustrative, not a quote from any network.
| Component | Rate | Amount |
|---|---|---|
| Interchange | 2.00% + $0.10 | $40.10 |
| Network assessment | 0.14% | $2.80 |
| Processor markup | 0.30% + $0.10 | $6.10 |
| Total fee | $49.00 |
You receive $1,951.00. The effective rate is 2.45%. If the same client paid by bank transfer for a flat $5 fee, you would keep $1,995. On a large invoice that gap matters, so use the invoice generator to list both payment options on your invoice. For how bank transfers compare, see ACH vs credit card.
Related terms
- Payment processor: the company that moves card data and money between banks.
- Merchant account: the account where card sales are settled before payout.
- Chargeback: a disputed card payment that can cost extra fees.
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