Interchange Fee
The fee paid to the card-issuing bank on every card transaction, forming the largest share of your payment processing costs.
Definition
An interchange fee is the amount the card-issuing bank collects every time a customer pays you by credit or debit card. Card networks like Visa and Mastercard publish the rates, but the money goes to the bank that issued the customer's card. Interchange is the foundation of card pricing: it typically makes up the majority of what you pay in processing fees, with the network and your processor adding their margins on top.
Rates vary widely based on card type and how the payment is taken. A basic debit card might carry interchange under 1%, while a premium rewards or corporate credit card keyed in online can exceed 2.5%. Card-not-present transactions, which include nearly all invoice payments made online, carry higher interchange than in-person payments because the fraud risk is greater. All-in, most small businesses pay roughly 1.5% to 3.5% per card transaction once everything is bundled.
Why It Matters
Interchange explains why your processing costs differ from invoice to invoice. When a client pays a $10,000 invoice with a corporate rewards card, you might lose $300 or more to fees; the same invoice paid by ACH could cost $5. You cannot control which card a client reaches for, but you can steer larger payments toward cheaper rails by offering bank transfer options prominently.
Understanding interchange also helps you evaluate processor pricing. Flat-rate plans are simple but average out the cost, so you overpay on cheap debit cards. Interchange-plus pricing passes through the true rate plus a fixed markup, which often saves money once you process more than a few thousand dollars a month.
Examples
- 1
A client pays a $2,000 invoice with a premium rewards credit card; interchange and markups total about $62, versus roughly $35 if they had used a basic debit card.
- 2
An agency processing $30,000 a month switches from a 2.9% flat rate to interchange-plus pricing and cuts average fees to 2.3%, saving around $180 a month.
- 3
A freelancer adds an ACH option for invoices over $5,000, steering big payments away from card interchange and saving hundreds per project.
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