What Are Interchange Fees? How Are They Calculated? (2023)

Discover the ins and outs of interchange fees and how to calculate them so you know exactly what you’re being charged on every card transaction.

As a merchant, you’re required to pay a number of fees to accept credit card payments. They could go to the payment processor, the credit card network, or the card-issuing bank.

In the case of interchange fees, a portion of your hard-earned cash for each transaction goes to the card-issuing bank. These fees, when combined with brand fees that go to the credit card network, make the swipe fee – a useful figure for business owners to know and track.

In this guide, I’ll walk you through the ins and outs of interchange fees. Once you understand what they are and what they’re all about, the sight of them on your statement won’t come as a surprise.


What Are Interchange Fees? 

In simple terms, interchange fees are fees that the credit card networks charge. The fees are directed to the card-issuing bank. They cover several costs, such as general handling costs, fraud, and bad debt.

Think of it like this: every time a customer makes a payment, there are several steps before the funds arrive in your business account. First, there’s the request to process the payment, then there’s the authorization, and then the actual processing. Someone has to handle the cost of this 3-part process, which is why merchants have to pay this fee.

The fees are taken when customers pay for a product or service with a credit or debit card. The amount you pay will depend on what type of card the customer uses and if the transaction is covered with the interchange fee standard.

However, it’s worth bearing in mind that interchange fees only account for a fraction of the credit card processing fees you have to pay as a merchant accepting card payments.

Other fees include payment processor fees and assessment fees:

Payment Processor Fees

The payment processor fees, or merchant services fees, account for the processor’s cut of the money you make with each transaction. Since the platform facilitates the transaction, it will take a small percentage as a fee, and can also charge a monthly or statement fee on top. 

To avoid hidden fees, it’s a good idea to go with a payment service provider that offers full fee transparency, such as Pay.com.

Assessment Fees

Assessment fees, also commonly known as card brand fees, are those which go directly to the credit card network.

When Are Interchange Fees Charged? 

Interchange fees are charged in real-time, specifically once a transaction has been made by a customer paying with a credit or debit card.

Who Has To Pay Interchange Fees?

If you’re a merchant offering products or services to customers and accepting credit or debit card payments, you’re obligated to pay interchange fees.

At the very least, you’ll pay an interchange fee on a per-transaction basis as well as the assessment fees that go directly to the credit card network. Generally, though, both of these fees are relatively low.

How Are Interchange Fees Calculated? 

Interchange fees are taken as a percentage plus a fixed fee. To figure out how much you owe in interchange fees, the credit card networks use several criteria. 

Here are the four main ways interchange fees are calculated: 

The Network 

First, the credit card network itself comes into play. The four major credit card networks are:

Each network will apply its own percentage rate, with Visa and Mastercard charging the lowest fees.

Payment Method

How the customer pays will have an impact on the interchange fee total too. 

The main differentiator here is whether it’s a card-present or card-not-present payment. Usually, the card-not-present fee will be higher than the card-present fee and is calculated as both a percentage and an additional charge.

Card Type

The type of card a customer uses affects the fee significantly, with debit cards typically incurring a lower fee than credit cards due to the smaller risk they present. Different types of credit cards can work out to be more or less expensive, as business credit cards for example will incur a higher fee than rewards cards. 

MCC (Merchant Category Code)

Your MCC is the last factor that will impact the interchange fees you pay. This four-digit code classifies your business based on the industry you’re in. Industries that are considered higher risk will typically lead to higher interchange fees.

On average, each interchange fee will be around 1-3% of the total transaction sum. Credit card networks traditionally refresh their rates twice a year, in April and October.

As such, if you want to stay up to date with interchange fees, you’ll want to check in with the card networks twice a year. Rates have stayed consistent for almost two years now as they were frozen during the worst of the COVID-19 pandemic, but now, credit card networks are back to their twice-a-year schedule.

The main takeaways of the changes are as follows:

  • Card-not-present transactions will incur significantly higher fees to combat online fraud
  • Tokenization implementation can provide merchants with an extra way of accepting payments through digital wallets
  • Some card-present rates have decreased

With the rise of tokenization and cryptocurrency, merchants can now offer customers a highly secure payment process. Credit card networks decreased the interchange fees for tokenized payments, opening the doors to lower fees for merchants willing to embrace the payment method.

It’s worth adding tokenization as a payment option since other fees have risen in the light of the most recent changes, so you have nothing to lose by implementing it.

Here are the average interchange fees for the four main credit card networks:

As mentioned earlier, Visa and Mastercard offer the lowest interchange fees, ranging from 1.30% to 2.90%, while the American Express interchange rates are the highest, going up to 3.25%. These figures only indicate an average sum, though, and won’t necessarily reflect the amount you’ll see on your statement.

Can You Reduce Interchange Fees? 

While regulators can, and have, advised credit card networks to lower their fees when they verge on being excessive, there’s no way you can get out of paying them. Since interchange fees are tied to individual transactions, and taken by credit card networks, you have no option but to take the hit. 

With that being said, by tightening your security measures for payments, you can lower the risk for credit card networks and qualify for lower fees. 

For example, if you accept debit card payments without PIN entry, this will incur a higher interchange fee. By enforcing PIN entry at the moment of payment, you can save yourself a small sum on each debit card transaction. The trade-off is that you make it slightly more inconvenient for your customers at checkout, which could be a risk.

If you want to avoid interchange fees as much as possible, you could also incentivize cash or other payment methods through discounts.

It’s also worth paying attention to any payment processor fees that show up on your statement. These are often applied in addition to interchange fees, and if you’re not aware of them, they can increase your bill.

Here at Pay.com, we believe in full transparency, so you never have to worry about hidden fees eating away at your finances with every transaction. Pay.com offers a convenient way for you to track all of your fees so you don’t run the risk of overpaying.

The Bottom Line: Interchange Fees

Interchange fees are always going to appear on your statement, provided you accept credit card payments. The main takeaways are that the fees are calculated on a per-transaction basis, they factor in four criteria, and are liable to change twice a year.

While there isn’t much you can do to reduce the cost of these fees, by shoring up your security measures at the point of payment, you can shave off a few cents off every transaction. 

Your best bet for offsetting the cost of interchange fees is to use Pay.com, a quick and easy way to track all your payments and make sure you don’t get stung by hidden fees.


Do I have to pay interchange fees?

Yes, as a merchant, you have to pay interchange fees if you accept credit or debit card payments. There’s no way to avoid the fees but you can reduce them by introducing security measures such as PIN entry on payment. If you use Pay.com as your payment service provider, you can enjoy the benefits of full transparency and easily keep track of all your transactions and fees.

Why are interchange fees so high?

Interchange fees can fluctuate based on the twice-a-year schedule that major credit card networks adhere to. In April 2022, the fees increased significantly after a period of time of being frozen, so even if they seem high now, they could easily decrease in October.

Are interchange fees negotiable?

Interchange fees aren’t negotiable per se, but if you’re willing to implement more robust security measures at the point of payment, you can knock a small sum off each transaction fee. Card networks set the fees, and though they can change twice a year, they’re fixed rates.

Can I avoid interchange fees?

No, merchants can’t avoid interchange fees as they’re set in stone by credit card networks and tied to card payment transactions. The only way to bypass the fees completely is to stop accepting credit cards, and accept only cash and/or alternative payment methods.

Meet the author
Sam Dixon
A writer with a keen interest in software and finance, Sam has spent the past several years producing content out of Seville, Spain. He keeps up to date with all things tech and enjoys reading when he has a spare minute.
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