Interchange revenue is the fee that a cardholder’s bank, known as the issuing bank, earns on every credit or debit card transaction. It’s deducted automatically from the sale amount before the merchant receives payment, and the card network, not the bank, decides how much it will be. For most businesses, interchange is the single largest component of the cost of accepting cards, often 70% to 90% of total processing fees.
Who Earns It and Who Pays It
Four parties are involved every time someone swipes, taps, or enters a card number online. The cardholder pays for goods or services. The merchant accepts the card. The acquiring bank (or payment processor) handles the merchant’s side of the transaction. And the issuing bank, which gave the cardholder the card, is the party that ultimately collects the interchange fee.
Sitting above all four is the card network, such as Visa or Mastercard. The network doesn’t collect interchange itself. It publishes the rate schedules that dictate exactly how much the issuing bank earns on each type of transaction, and those schedules run hundreds of line items deep.
For the issuing bank, interchange offsets real costs: funding rewards programs, covering fraud losses, extending credit to cardholders who don’t pay their balance, and maintaining the technology behind instant authorizations. For the merchant, it’s a cost baked into every sale before any profit calculation begins.
When the Fee Gets Collected
A card payment moves through authorization, clearing, and settlement. Interchange is accounted for at settlement, the point where money actually changes hands.
At settlement, the issuing bank transfers the transaction amount through the network to the acquiring bank, minus the interchange fee. On a $100 sale with a 2% interchange rate, the issuing bank keeps $2.00 and forwards $98.00. The acquiring bank then deposits that net amount into the merchant’s account, after subtracting its own fees. The merchant never touches the gross sale amount.
What Determines the Rate
Interchange isn’t one number. It’s a matrix of hundreds of rate categories, and the effective rate a merchant pays fluctuates from one transaction to the next. Four variables do most of the work.
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 cardholder perks. Corporate and purchasing cards can push rates higher still because they come with enhanced reporting features the issuing bank must support. Looking at Visa’s published rate schedule, the spread 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
Transaction Method
How the card is used matters. A card-present transaction where a customer taps or inserts a chip carries lower fraud risk than a card-not-present transaction like an online order or phone purchase. The issuing bank prices that higher risk into the rate for card-not-present sales, typically adding several basis points. PIN-authenticated debit tends to cost less in percentage terms than signature-authenticated debit, though PIN transactions often carry a slightly higher flat fee. For merchants with large average ticket sizes, PIN debit is almost always cheaper overall.
Merchant Category
The card networks assign every merchant a category code that influences which interchange tier applies. Supermarkets, gas stations, and utilities often qualify for lower preferred rates because they process high volumes with relatively low fraud and chargeback rates. Restaurants, hotels, and e-commerce merchants tend to land in higher-rate categories.
Transaction Data Quality
For businesses that accept corporate or purchasing cards, the amount of data submitted with the transaction directly affects the rate. Card networks recognize three tiers of data. Level 1 is basic information like the card number, date, and total amount. Level 2 adds fields like sales tax amount, customer reference number, and invoice number. Level 3 goes further, including line-item detail for each product or service purchased.2Mastercard Gateway. Level 2 and 3 Data Submitting Level 2 or Level 3 data qualifies the transaction for lower rates because it reduces fraud risk and simplifies reconciliation for the issuing bank. Businesses that sell to other businesses or government agencies and ignore this are leaving money on the table.
Where Interchange Sits in the Merchant’s Total Bill
Merchants often look at the total deducted from their sales and assume the whole thing is interchange. It’s not. Total merchant service fees have three components, each paid to a different party.
- Interchange goes to the issuing bank. It’s the largest piece, and the merchant cannot negotiate it because the card networks set it.
- Network assessment fees go directly to the card network for using its infrastructure. These are small, typically a fraction of a percent of transaction volume.
- Processor markup goes to the acquiring bank or payment processor for its services. This is the only component a merchant can negotiate.
How these three appear on a statement depends on the processor’s pricing model. Interchange-plus pricing shows the actual interchange rate for each transaction plus a fixed markup, which lets the merchant verify what’s paid to whom. Flat-rate pricing bundles everything into a single percentage set high enough to cover the most expensive interchange categories, so merchants processing mostly debit or low-risk in-person sales tend to overpay. Tiered pricing sorts transactions into “qualified,” “mid-qualified,” and “non-qualified” buckets on terms processors rarely disclose, and it’s the hardest of the three to audit.
How Refunds and Chargebacks Affect It
Refunding a sale doesn’t automatically return the interchange fee. The issuing bank already earned its fee at settlement, and the refund is processed as a separate transaction with its own interchange rate for credit vouchers. Visa’s rate schedule includes specific “Credit Voucher” categories, meaning the issuing bank may collect a fee on the refund itself, or in some cases return a portion of the original interchange to the acquirer at a reduced rate.1Visa. Visa USA Interchange Reimbursement Fees A refunded sale can cost the merchant more than if the sale had never happened.
Chargebacks hit harder. When a cardholder disputes a transaction and the issuing bank reverses it, the merchant loses the sale amount, doesn’t recover the original interchange fee, and gets hit with a separate chargeback fee from the processor. Those processor fees typically run $10 to $50 per dispute, and merchants with high chargeback ratios can face increased processing rates or account termination.
Where Regulation Caps Interchange
U.S. Debit: The Durbin Amendment
The most significant U.S. regulation on interchange is the Durbin Amendment, part of the Dodd-Frank Act passed in 2010. It directed the Federal Reserve to limit debit card interchange fees to amounts that are “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 Federal Reserve 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.4eCFR. 12 CFR Part 235 – Debit Card Interchange Fees and Routing (Regulation II) An additional one-cent adjustment is available for issuers meeting certain fraud prevention standards. On a $50 debit purchase at a regulated bank, maximum interchange comes to about 24.5 cents rather than the dollar or more a credit card might generate on the same sale.
Banks with less than $10 billion in assets are exempt from the cap and can charge higher debit interchange rates.4eCFR. 12 CFR Part 235 – Debit Card Interchange Fees and Routing (Regulation II) Community banks and credit unions fall into this category, and their debit interchange rates are typically several times higher than the regulated cap.
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. The current cap remains at 21 cents plus 0.05%.
The European Union
The EU took a more aggressive approach. Its Interchange Fee Regulation caps consumer debit card interchange at 0.2% and consumer credit card interchange at 0.3% of the transaction value.5EUR-Lex. Fees for Card-Based Payments These limits apply to domestic and cross-border consumer transactions within the EU, and they are dramatically lower than typical U.S. rates.
U.S. Credit Cards Have No Cap
The Durbin Amendment only covers debit. U.S. credit card interchange has no federal ceiling, and the card networks set those rates freely. This is why credit card interchange in the U.S. can reach 2.5% or more on premium rewards cards while comparable EU transactions are capped at 0.3%. Accepting credit cards will always cost more than accepting debit cards, and the gap is wider in the U.S. than in most other developed markets.
What Merchants Can Actually Do
Merchants can’t negotiate interchange rates directly, but they can influence which rates apply to their transactions.
- Encourage debit over credit. Regulated debit interchange is a fraction of credit card interchange, and steering customers toward debit or setting minimum purchase amounts for credit cards can meaningfully reduce a merchant’s blended rate.
- Optimize transaction method. Processing cards in person with chip or contactless technology qualifies for lower card-present rates. E-commerce merchants can implement address verification and 3D Secure authentication to qualify for better card-not-present rates.
- Submit Level 2 and Level 3 data. Businesses that sell to corporations or government buyers should make sure their payment systems capture and transmit enhanced transaction data. The savings on large B2B transactions can be significant.
- Settle transactions promptly. Most card networks penalize delayed settlement by downgrading transactions to higher interchange tiers. Batching and settling daily avoids this.
- Reconsider the pricing model. Merchants on flat-rate or tiered pricing should request an interchange-plus quote and compare the two over a few months of actual transaction data.
None of these moves eliminates interchange. Combined, they can shave meaningful basis points off a merchant’s effective rate, and on high-volume businesses, basis points add up fast.