What is “interchange” processing?

Hospitality Association credit card processing program

Interchange is a fee that is set by the credit card brands (Visa®, Mastercard®, American Express® and Discover®) and their stakeholders (mainly the banks that issue credit cards). Interchange is calculated as a percentage (usually 1 to 3 percent) of the gross sale amount on each credit and debit card transaction a merchant handles.

Sometimes referred to as a swipe fee, interchange is charged to merchant services providers like us and paid to card-issuing banks (where the cardholders maintain their accounts) as compensation for processing credit and debit card transactions. The fee is subsequently passed along by the providers to their merchant clients.

Interchange is the largest component of the discount rate that appears on their monthly merchant account statements. The discount rate also includes association dues, network access charges and profit for the provider.

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Pricing rules for interchange are very complicated and based on many variables. Among the card brands there are hundreds of interchange categories, reflecting the varying levels of risk associated with different types of transactions. For example, the interchange rate for card-present (face-to-face) transactions is lower than for card-not-present (CNP) transactions because card-present is considered less risky than CNP.

Other factors that influence interchange include:

  • Card brand
    Card type (credit, PIN debit, signature debit)
  • Card program (rewards, business, etc.)
  • Business type accepting card (retail, restaurant, lodging, etc.)
  • Transaction size
  • Whether settlement was delayed
  • Whether AVS (Address Verification System) was used in CNP transaction
  • The credit card brands adjust their interchange reimbursement fee schedules twice a year and post them on their respective websites.

Interchange is not a negotiable part of your merchant account package with your merchant services provider because the provider has no control over the rate. Other fees for credit card processing are more flexible because they are set by the merchant services provider.

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Hospitality Association credit card processing program