Interchange Fees: Understanding Payment Processing Costs

Every time a customer pays with a credit or debit card, multiple parties split the transaction revenue. The largest share goes to interchange fees, which account for 60-80% of what merchants pay to accept card payments.

The numbers add up quickly. According to the Nilson Report, US merchants paid $172.05 billion in total processing fees in 2023 to accept $11.24 trillion in card payments. Of that total, Visa and Mastercard credit card interchange fees alone reached $100.77 billion, the first time interchange fees crossed the $100 billion threshold.

Whether you're a small business owner accepting payments at your storefront, an e-commerce platform processing online transactions, or a fintech operator building payment infrastructure, interchange fees directly impact your bottom line. Understanding how these fees work and what drives costs helps you make informed decisions about payment processing, pricing strategy, and infrastructure choices.

What are interchange fees?

Interchange fees are charges that the merchant's bank (acquirer) pays to the customer's bank (issuer) for each card transaction. The issuing bank receives these fees to cover the cost of issuing cards, managing fraud risk, funding reward programs, and providing credit.

Key characteristics of interchange fees:

• Non-negotiable rates: Set by payment networks (Visa, Mastercard, American Express), not by individual banks or processors
• Largest cost component: Account for 60-80% of total merchant payment acceptance costs
• Variable pricing: Hundreds of different rates based on card type, transaction method, and merchant category
• Issuer compensation: Fund credit card rewards programs, fraud prevention, and operational costs

Whether you're processing $10,000 monthly at a coffee shop or $10 million annually through a payment platform, interchange fees represent your largest card acceptance expense. A small business with $50,000 in monthly card sales typically pays $600-$1,200 in interchange fees alone. A payment platform processing $100 million annually will pay $1.5 to $3 million in interchange before adding assessment fees and processor markups.

The interchange fee structure exists because card payments operate as multi-party systems. When a cardholder makes a purchase, the issuing bank extends credit or provides immediate access to funds. The issuing bank assumes fraud risk, credit risk (for credit cards), and operational costs. Interchange fees compensate the issuing bank for these services while creating an incentive structure that keeps banks issuing payment cards to consumers.

How interchange fees work

Understanding how an interchange fee works requires following the money through a card transaction. When a customer pays with a payment card, the transaction moves through multiple parties:

1. Customer uses a credit or debit card at a merchant (online or in-person)
2. Merchant's payment processor (acquirer) sends the transaction to the card network
3. Card network (Visa, Mastercard, etc.) routes the transaction to the issuing bank
4. Issuing bank approves or declines based on available funds and fraud checks
5. Card network returns the authorization to the acquirer
6. Merchant receives payment minus all processing fees

When a customer makes a $100 purchase with a credit card, here's how the costs typically split:

The interchange fee represents the largest component of the merchant's cost. Card networks publish interchange fee schedules with hundreds of different rates depending on transaction characteristics. A Visa Infinite rewards card generates higher interchange than a basic debit card because the issuing bank funds more expensive reward programs.

Payment platforms, neobanks, and embedded finance products typically act as the merchant of record for their customers. This means they absorb interchange costs on every transaction. 

A B2B payment platform processing $50 million annually in card volume pays roughly $900,000 to $1.5 million in interchange fees, directly impacting unit economics and profitability. For marketplaces handling cross-border payments, these costs compound with additional FX and cross-border fees.

What determines interchange fee rates

Interchange rates aren't uniform across all card transactions. The card networks evaluate multiple factors to set interchange fees for each transaction type.

• Card type drives the base rate. Credit cards charge higher interchange than debit cards because credit cards involve lending risk and often fund reward programs. Premium cards with travel rewards or cashback programs have higher interchange rates than basic cards. Corporate and commercial cards typically have the highest rates due to enhanced purchase protections and detailed reporting features that benefit business users.
• Transaction characteristics affect risk assessment. Card-not-present transactions (online purchases, phone orders) cost more than card-present transactions due to higher fraud risk. International transactions incur additional cross-border fees on top of base interchange. The transaction amount influences whether percentage-based rates or flat fee structures apply more heavily.
• Geographic regulation creates significant variation. US regulated debit cards are capped at $0.21 + 0.05% under the Durbin Amendment, which applies to banks with more than $10 billion in assets. EU card transactions have interchange fees capped at 0.3% for credit cards and 0.2% for debit under the Interchange Fee Regulation. Other regions maintain different regulatory frameworks, with some markets having minimal regulation and others imposing strict caps.

Here's how these factors combine for a $100 online purchase with different types of cards:

According to industry data, the average transaction in the US generates approximately 1.81% in interchange fees, though this varies significantly based on the factors above.

Real-world cost examples

Understanding interchange rates in context helps you predict actual costs for your business:

Card-present businesses pay less due to lower fraud risk and higher debit usage. Card-not-present businesses pay 0.5-1.0% more. B2B businesses face the highest rates due to corporate card usage.

Interchange fees vs other payment processing costs

Interchange fees represent only part of the total cost merchants pay to accept card payments. Understanding the complete fee structure helps fintech operators accurately model payment processing economics.

Interchange consistently represents 60-80% of total merchant costs, making it the primary driver of payment acceptance economics. This matters particularly for fintechs operating on thin margins where payment processing costs directly impact profitability.

Card networks set interchange fees centrally and publish them in rate schedules. Merchants have no ability to negotiate these rates. Assessment fees are similarly non-negotiable and set by the payment networks. Only the processor markup component is negotiable, which represents the smallest portion of total costs.

Regulatory environment for interchange fees

Government regulation of interchange fees varies significantly by jurisdiction and directly impacts payment processing economics for fintechs operating in different markets.

The Durbin Amendment

Passed as part of the 2010 Dodd-Frank Act, the Durbin Amendment capped interchange on regulated debit cards at $0.21 + 0.05% of the transaction amount. The regulation applies to debit cards issued by banks with more than $10 billion in assets. Before the Durbin Amendment, debit interchange averaged 1.14% across all transactions. After implementation, regulated debit interchange dropped to an average of $0.24 per transaction.

The EU Interchange Fee Regulation

Implemented in 2015, the IFR capped consumer credit card interchange at 0.3% and consumer debit card interchange at 0.2% for card-present transactions. These caps apply to all consumer card transactions within the European Economic Area, creating significantly lower payment acceptance costs than in the US market.

A fintech processing €100 million annually in European consumer card payments pays approximately €250,000-€300,000 in interchange under the IFR. The same transaction volume processed in the US would generate $2.0-$2.5 million in interchange costs—an 8x difference. This regulatory divergence creates fundamentally different unit economics for payment-dependent business models across markets.

Interchange fees are capped in multiple jurisdictions to varying degrees:

Strategies to reduce interchange costs

Merchants and businesses cannot eliminate interchange fees entirely when accepting card payments, but several strategies can reduce the effective rate and total cost burden.

Choose the right payment processor and pricing model 

Interchange-plus pricing offers transparency by showing actual interchange costs plus a fixed markup. Flat-rate pricing (like Square's 2.9%) simplifies budgeting but can cost more if you primarily accept debit cards. Tiered pricing is the least transparent and often most expensive. Switching from tiered to interchange-plus can save 0.3-0.8% per transaction.

Optimize payment processing practices 

Card networks reward businesses that follow best practices with lower rates. Settle transactions within 24 hours to avoid higher non-qualified rates. Implement EMV chip readers, address verification systems, and tokenization to qualify for lower interchange. For B2B sales, submit Level 2 and Level 3 transaction data to reduce corporate card interchange from 2.9% to 1.9%—saving $50 on a $5,000 transaction.

Encourage lower-cost payment methods 

Debit cards cost 0.8-1.2% in interchange while credit cards cost 1.8-2.5%. Regulated debit cards are capped at $0.21 + 0.05%, making a $50 transaction cost just $0.24 versus $1.10-$1.40 for credit. For transactions over $1,000, ACH bank transfers cost $0.26-$1.50 flat fee regardless of amount.

Understand surcharging rules 

Some jurisdictions allow adding a fee (typically 2-4%) to credit card transactions. This is legal in most US states but regulated—you cannot surcharge debit cards, and fees cannot exceed your actual cost. Connecticut, Massachusetts, and Puerto Rico prohibit surcharging. Cash discounting (offering a discount for cash/debit) is legal nationwide and often better received.

Negotiate processor markup 

While interchange rates are fixed by card networks, you can negotiate the processor markup. Businesses processing $100,000+ monthly have leverage to reduce markup from 0.40% to 0.25%, saving $750 monthly on $500,000 in volume. Review statements quarterly, as interchange rates change twice yearly.

Consider alternative payment infrastructure for specific use cases 

For B2B payments, international transfers, and high-value transactions, alternative infrastructure can eliminate card interchange:

• ACH and bank transfers: US ACH costs $0.26-$1.50 flat fee per transaction regardless of amount, making it substantially cheaper than percentage-based card interchange for transactions over $50.
• Real-time payment rails: Systems like FedNow (US), PIX (Brazil), and SEPA Instant (Europe) settle payments in seconds with flat fees or minimal costs. According to recent data, PIX processed over 64 billion transactions in 2024, demonstrating that alternative payment rails can achieve mass adoption when cost and convenience advantages are clear.
• Stablecoin and local payment infrastructure: For cross-border business payments, some payment infrastructure providers combine stablecoin settlement with local payment networks. This approach can bypass traditional card networks for specific corridors and transaction types, particularly for B2B payments where both parties are willing to adopt alternative settlement methods.

Learn more about how businesses can connect cryptocurrency payments to cut transaction costs.

Here's a cost comparison across payment methods for a $10,000 cross-border B2B transaction:

The viability of alternative payment methods depends heavily on use case. Consumer retail transactions require card acceptance for competitive reasons. B2B payments and cross-border transfers have more flexibility to adopt lower-cost infrastructure, particularly when transaction sizes are large enough that cost savings outweigh convenience factors.

Due is building the payment infrastructure of the future

Interchange fees are just one layer of costs in traditional card payments. Total payment acceptance costs often reach 3-5% when you factor in assessment fees, processor markups, and cross-border charges.

Due offers a different approach: accept payments globally for less than 1% by leveraging stablecoin settlement and local payment rails.

• Multi-currency accounts: Hold, receive, and convert funds across 80+ currencies with transparent FX rates and minimal fees.
• Global payment acceptance: Accept payments from customers worldwide using bank transfers, mobile money, digital wallets, and crypto. From e-commerce checkouts to mobile point-of-sale, payment links to invoices. Near-zero processing fees with instant stablecoin settlement or same-day local currency deposits.
• Cross-border payments: Send payments to 80+ countries using local rails, real-time payment systems, and stablecoin networks. Clear pricing with no hidden markups.
• Developer API: Integrate payment acceptance, multi-currency accounts, and global payouts into your product with full programmatic control.

For businesses tired of paying 2-3% in interchange fees, Due provides infrastructure to accept payments at a fraction of traditional card processing costs.

Book a demo to learn how Due can reduce your payment acceptance costs.