Interchange Explained

Interchange, what is it? Why is matters for you, and what to watch out for!

Interchange, what is it?

Businesses that accept credit and debit cards make it convenient for the consumer to make purchases, however, it comes with a cost. The cost to process that card transaction is known as interchange.

It is a fee that is predetermined and charged directly by the card brands and the issuing bank; Visa, Mastercard. 

While Visa and Mastercard transparently display their interchange fees by card category directly on their websites, American Express & Discover do not. In fact, American Express and Discover have different names for these fees.

Visa Interchange rates

Mastercard Interchange rates

How are interchange fees determined?

Interchange fees vary depending on several factors. Let us explain what those factors are.

The business type

The Merchant Category Code (MCC), a four-digit code used by the card brands Visa, Mastercard, etc., to indicate what type of goods or services the business sells. Whether your business is a restaurant, retail, travel agency, non-profit organization, or a high-risk business may affect the cost of interchange. When setting up a merchant account, ensuring that your business is classified under the proper MCC code can make a big difference when it comes to interchange fees.

The card used

Interchange is determined by the type of card used to make a purchase. Debit and credit cards will have separate interchange categories. Purchases made with a debit card will cost less in fees than purchases made with a credit card that offers high consumer rewards. 

 The card brand comes into play in determining interchange. Visa and Mastercard have different fees, and these fees are subject to change on a quarterly basis. 

 Credit and debit cards can be classified as consumer cards, corporate cards, and government cards. Who owns the card impacts interchange qualifications. 

Interchange card

How the payment was taken

How the payment was taken plays a role in interchange fee qualifications.

Was the card present and taken in person or was the card not present? How was the payment processed? Card present transactions will cost lower to process than card not present transactions

Card present transactions are when the card data is electronically captured by a payment terminal, reducing the risk and processing cost. Customers can swipe the magnetic strip, insert a EMV chip card, or tap their digital wallet near a contactless device. In person transactions where the card is present but is manually keyed into the terminal are not considered card present transactions.

Card present transactions are always the best route for both the business and customer’s security. The customer has full control of their card data therefore reducing the risk of fraud.

Card not present transactions are catalog or phone orders, transactions manually entered on a terminal or through an online portal, electronic invoices, and all e-commerce transactions. 

Card not present transactions can provide convenience for your customers. With digital shopping channels rapidly growing, some businesses prefer this method of payment. However, card not present transactions do carry higher fees.

What you can do to qualify for the lowest interchange rates!

Although, the business has little control over which cards are being used by customers to make purchases, there are steps you can take to make sure that you are qualifying for the lowest interchange fees.

First, ensure that your business is listed under the correct MCC category with the processor to achieve correct qualifications for your business category.

Accepting in person, card-present transactions will usually qualify for the optimal rates. Swiping a magnetic strip or dipping chipped cards. If prompted, input correct card information. This information could be a debit card PIN number, address, zip code, and/or CVV code that is associated with that card.

Government and corporate cards can qualify for lower interchange costs, however, only if additional level 2 or level 3 information is input correctly.

Incorrect card information could result in downgrades. Downgrades are essentially higher interchange rates for cards. If your business accepts a high amount of government or corporate cards, it will be important to input the enhanced level 2 or level 3 card information properly to avoid downgrades, which could result in higher rates.


A common mistake is not settling transactions within the required period. All transactions should be settled daily at the end of the business day to achieve optimal interchange rates. Settling transactions 2 or more days later could result in downgrades and higher costs.

At iQ Merchant, our account managers can help your business qualify for the lowest interchange rates by identifying areas where you can save on fees and make a few modifications to the way you currently process cards.

interchange fees

What to look out for

Watch out for processors who do not have transparent pricing or have a lot of “other fees”. Some processors may try to bundle fees together, while others have “padded interchange” fees. Remember, interchange is determined directly by the card brands and anything over the top is bunded in to look like direct interchange, but this is where the processor profits. Interchange is non-negotiable when it is direct. Padded interchange costs are made to look as if they’re non-negotiable to consumers outside of the payment industry.

Make sure that the plan you choose is right for your business. Due to the complexity of processing costs, read carefully and choose wisely. At iQ Merchant, we pride ourselves with high standards of transparency so that our merchants know exactly what they are paying for. Partnering with iQ Merchant will provide you with transparent pricing, direct interchange costs, and the right processing package specific for your business needs.

Check out iQ’s transparent prices!


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