What is Interchange and How Does it Work?

Every swipe of a credit card charges the customer the amount they owe. But every swipe of a credit card also charges you interchange fees. In this article, we’ll answer your interchange questions.

**Not applicable for surcharging accounts as the cardholder is paying a set credit card surcharging fee.**

What is interchange? How does it work


What is Interchange?

In merchant services, 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. You can think of interchange as the cost that credit card companies charge businesses to accept their cards. It is unavoidable and every business pays it.


How Interchange Works

When a credit card transaction takes place, the issuing bank (cardholder’s bank) charges a fee as a percentage of the transaction amount. This fee is called interchange and it covers the cost for the issuing bank to manage the cardholder's account and, in many cases award points, miles, cashback, and other rewards to the cardholder. This fee, along with other dues and assessments, is paid by all merchants to the issuing banks and the major card brands for their role in managing card accounts and processing networks across the country. The term "Interchange" is commonly used when referring to all of these fees as a group.

Interchange is the wholesale cost of accepting credit cards. All processors will charge a markup over interchange resulting in the merchant paying a "retail" rate for their processing services. A lot of companies charge what is referred to as “interchange plus” and add a percentage on top of the interchange for each card. With the Stax by Fattmerchant subscription model, you pay our membership fee and in return we give you access to the direct, wholesale cost of interchange. You may already buy your groceries at a discount club the same way. 


Different Types of Fees

The reality is that you can’t avoid interchange fees. They are universal, and all merchants who accept credit cards must also accept the reality of interchange. What can be avoided are the mark-ups and hidden fees from your credit card processor.

There are some differing factors in the interchange fees you receive such as processing method, transaction data, card type, card brand, and card owner.

  • 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 online 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.

  • Card Type: Separate interchange categories exist for credit and debit 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 municipality impacts interchange qualification.

See the major card brands interchange fees below:

The only solution to reducing your credit card processing fees is to eliminate markups and hidden fees and switch to subscription-based pricing through Stax by Fattmerchant. Unlike interchange plus or tiered pricing models, subscription-based pricing illustrates upfront that your bill will only consist of:

  1. Interchange
  2. Low monthly subscription
  3. Low cost per transaction

There are no additional costs for our 24/7 customer service, next day funding, or free online reporting, which makes sweating over credit card processing fees a thing of the past. You need processing, but you don’t need the fees. With Stax, we never profit from your volume — but you do!


Please see the associated articles below for more information on these topics:

How to Lower Interchange Fees

Best Practices for Card Acceptance

Level 2 and Level 3 Processing