Interchange fees are fees paid between banks when a card payment is processed. In most card transactions, the merchant's acquiring bank pays an interchange fee to the cardholder's issuing bank. These fees are part of the total cost of accepting card payments and are usually included in the processing fees charged to the merchant by their acquirer or payment service provider (PSP).
Interchange fees are set by card networks and can vary by card type, transaction type, country, merchant category, security level, and whether the payment is made online or in person.
When a customer pays by card, several parties take part in the transaction: the merchant, acquirer, card network, issuer, and cardholder. After the transaction is authorised and settled, part of the transaction value is transferred from the acquiring side to the issuing side as the interchange fee. The issuer receives this fee for managing the cardholder relationship, processing the transaction, and assuming certain risks.
For merchants, interchange is usually not charged as a separate visible line item unless they use an interchange-plus pricing model. In blended pricing models, interchange is included in the overall card processing rate.
Interchange fees are technically paid by the acquirer to the issuer whenever a card transaction is processed.
The issuer receives the interchange fee as compensation for issuing the card, managing the cardholder relationship, and taking on certain transaction risks. The acquirer pays this fee as part of the card payment process, while the card network defines the interchange categories and rules that determine how the fee is calculated. Although merchants do not pay interchange fees directly to issuers, they typically bear the cost through the card processing fees charged by their acquirer or PSP.
This is why interchange fees are an important part of payment costs for merchants, even though the fee itself is exchanged between financial institutions behind the scenes.
Interchange fees are not the same for every transaction. They may change depending on factors such as:
Because interchange depends on multiple variables, two transactions with the same value may still have different card acceptance costs.
