Credit Card Processing

Interchange Rates and Fees


March 16, 2018

In credit card processing, interchange is the money transferred from the acquiring bank to the issuing bank for each bankcard transaction. Interchange fees account for the majority of credit card processing costs and are established by the card brands (Visa, MasterCard, Discover) of open-loop processing systems.

Historically, interchange has been imposed upon businesses to reimburse issuing banks for lost interest resulting from a cardholder’s grace period for repaying their debt. This is why Visa still refers to interchange fees as “interchange reimbursement fees.” Today, Visa states that “the primary role of interchange is to create an equitable balance of incentives between a cardholder’s financial institution — which issues Visa cards to consumers — and a retailer’s financial institution that enrolls retailers and processes Visa transactions for them.” (Source)

When a credit card transaction takes place the issuing bank (cardholder’s bank) pays the acquiring bank (merchant bank) for their cardholder’s purchase less the interchange fee for the transaction. The acquiring bank then pays their merchant from the remaining balance minus a markup for processing the transaction.

Merchants ultimately receive the gross amount of the sale minus a series of base costs and markups that include interchange, dues, assessments and the processor’s markup. These fees are described in more detail in our article about credit card processing fees.

Interchange fees for the two largest card brands may change twice annually, in April and October. The interchange fee schedules for Visa and MasterCard can be found here:

Interchange Qualification
The portion of a transaction that’s taken by an issuing bank for interchange depends on the interchange category that the transaction falls under as dictated by the card brand (Visa, MasterCard). The process of categorizing a transaction is called interchange qualification, and it happens on a per-transaction basis.

A number of factors are used to determine where a transaction qualifies at interchange. Some of these factors can be controlled or influenced by the merchant while others can’t. Factors that merchants can influence include:

  • Processing method
    Card-present and card-not-present are the terms used to generally refer to the different ways of processing a credit card transaction. Card-present interchange categories carry smaller fees than card-not-present categories.

    • Card-Present
      Card-present transactions are those where a merchant is able to read a customer’s credit card data electronically. This process is referred to as electronic data capture.
    • Card-Not-Present
      In the case of a card-not-present transaction the cardholder’s information is entered manually by the merchant or provided by the cardholder through a gateway or portal.
  • Transaction data
    The information supplied with a credit card transaction impacts how it qualifies at interchange. Proper and complete transaction data is especially important for merchants that process card-not-present transactions and for those that deal with corporate and government enhanced data.
  • Merchant Category Code
    Specific interchange categories exist for businesses that fall under a certain merchant merchant category code (MCC) designations.

Interchange qualification factors that a merchant can’t control include:

  • Card Type: Separate interchange categories exist for credit and debit card charges.
  • Card Brand: The brand of a bankcard will impact interchange qualification. This criterion is typically associated with credit cards that yield some type of reward for the cardholder.
  • Card Owner: Whether a credit or debit card is issued to an individual, business, corporation or municipal agency impacts interchange qualification.

Interchange Optimization
Interchange fees account for the majority of a business’s credit card processing expense, making it very important to ensure that the majority of transactions qualify to the lowest possible categories as often as possible. The process of adapting a business’s processing behavior to achieve the lowest possible interchange costs is called interchange optimization.

The extent to which interchange can be optimized for your business depends on several variables and is a question that you should address with your merchant service provider or your CardFellow representative.

Interchange Fee Resources:

Ben Dwyer

BY Ben Dwyer

Ben Dwyer began his career in the processing industry in 2003 on the sales floor for a Connecticut‐based processor. As he learned more about the inner‐workings of the industry, rampant unethical practices, and lack of assistance available to businesses, he cut ties with his employer and started a blog where he could post accurate information about credit card processing. As the blog gained in popularity, Ben began directly assisting merchants in their search for a processor. Ben believes in empowering businesses by providing access to fair, competitive pricing, accurate information, and continued support. His dedication to transparency and education has made CardFellow a staunch small business advocate in the credit card processing industry.



  1. from Sateesh, on July 9, 2015

    If a certain MCC has lower interchange fee can I switch my merchant category to that? In other words, say I’m in restaurant business but can I switch my MCC code to Travel?

    • from Ellen Cunningham, on July 9, 2015

      No, your business must be listed with the correct MCC for your actual business type.

  2. from Clinton Glenn, on February 19, 2015

    Does the frequency that a merchant settles their batches (i.e they only settle their terminal and close their batch once a week as apposed to having it settled and closed every night) affect the interchange rates they can be charged as well?

    • from Ellen Cunningham, on April 23, 2015

      Hi Clinton,
      The interchange rate is absolutely impacted by settlement time. I should preface this answer with the fact that interchange is complex, and a business’s MCC will impact the settlement time required for the optimal (lowest) interchange rate.

      For most business types, Visa and MasterCard require card-present transactions to be settled within two days of authorization (excluding Sundays and holidays). Card-not-present authorizations must be settled within three business days of authorization.

      Authorizations that are not settled within the allotted time will be downgraded, meaning the transaction will run at a higher than optimal interchange category.

      Required settlement times vary depending on business type, transaction method, and even card type. If you chose your processor through CardFellow you’re welcome to contact us and we can tell you the exact settlement requirements for your business. If you didn’t choose your processor through CardFellow, you can contact your sales office or processor directly to inquire.

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