What is Interchange?
The fee paid by the acquirer to the issuer on every card transaction, set by the schemes.
Interchange is a fee that the merchant's acquiring bank must pay to the customer's card-issuing bank for each card transaction.
It serves as a mechanism to compensate the issuer for the costs and risks it undertakes in the payment process, including the risk of fraud, the cost of funding credit, and operational expenses.
The card schemes, Visa and Mastercard, set the interchange rates, creating complex schedules based on numerous variables. These are not negotiated by banks or merchants but are published and updated periodically by the schemes.
The interchange rate for any given transaction is determined by a combination of factors present in the authorisation data.
Key variables include the card type (e. g. , consumer debit, consumer credit, commercial, premium), the transaction environment (card-present or card-not-present), the merchant's category (MCC), the presence of security features like 3D Secure, and the geographic relationship between the merchant and the cardholder (domestic, intra-regional,
or inter-regional). A common misconception is that interchange is a simple, single rate.
In reality, it is a vast matrix of hundreds of potential rates, and optimising for the lowest possible rate is a key goal of sophisticated payment processing.
Worked example
An Irish merchant sells a piece of furniture for €500. The customer, based in Germany, pays online using their German-issued Mastercard Commercial card.
As this transaction is processed cross-border within the European Economic Area (EEA), it qualifies as an intra-regional transaction. However, because it is a Commercial card, it is not subject to the 0.30% consumer credit cap.
The applicable interchange rate for an e-commerce 'Commercial Standard' card might be 1.90%. The interchange fee would therefore be €500 * 1.90% = €9.50.
This fee is transferred from the merchant's Irish acquirer to the German issuing bank during settlement.
If the same customer had used a consumer Debit card, the regulated cap of 0.20% would apply, reducing the interchange fee to just €1.00 (€500 * 0.20%), illustrating the significant cost impact of card type.
Scheme notes
Visa and Mastercard both publish extensive and complex interchange rate tables for each region. In the US market, Visa’s rates are known as Interchange Reimbursement Fees (IRFs), while Mastercard simply lists them as Interchange Rates.
Post-Brexit, a crucial difference has emerged for UK and EU merchants. Transactions between the UK and EEA are now classified as 'inter-regional', meaning the EU's regulated caps of 0.20% (debit) and 0.30% (credit) no longer apply.
Consequently, both Visa and Mastercard increased their default card-not-present rates for these transactions to around 1.15% for debit and 1.50% for credit, a five-fold increase that significantly impacts cross-border merchants.
American Express, operating primarily as a three-party scheme where it is often both acquirer and issuer, does not have interchange in the same way; its 'discount rate' pricing model internalises these costs.
Why it matters for merchants
Interchange fees typically constitute the largest single component of a merchant's total card processing costs, often accounting for 70-90% of the Merchant Service Charge (MSC). Reducing interchange is one of the most effective ways to lower payment expenses.
Merchants can achieve this by ensuring transactions qualify for lower rates, a process known as 'Interchange optimisation'. This involves using security tools like AVS, CVV, and 3D Secure, and, for B2B merchants, submitting Level 2/3 data.
For international businesses, Cardflo's payment orchestration can route transactions to a local acquirer in the customer's region. This can convert an expensive inter-regional transaction into a cheaper domestic one, directly reducing interchange costs and improving approval rates.
Frequently asked
How does transaction security affect interchange rates?
Transactions authenticated with 3D Secure often qualify for lower interchange tiers because they carry a reduced risk of fraud and provide a liability shift to the issuer.
Conversely, non-authenticated or card-not-present transactions may be categorised under higher-cost categories by the schemes to compensate for increased risk.
Why is interchange higher for commercial cards than consumer cards?
Commercial or corporate cards are not subject to the same regulatory caps as consumer cards in many jurisdictions, allowing schemes to set higher rates. These higher fees are intended to fund the enhanced reporting, insurance, and rewards programmes that typically accompany business-to-business payment products.
Why is interchange so much higher for commercial and corporate cards?
Issuers justify higher interchange rates for commercial cards based on several factors. They argue these cards carry a higher risk profile, offer more extensive benefits to the business cardholder (such as detailed reporting, expense management tools, and insurance), and have higher operational costs.
For example, a standard European intra-regional consumer Credit card is capped at a 0.3% interchange fee, whereas a Corporate card for the same transaction could attract a rate of 1.9% or higher. These uncapped rates represent a significant revenue stream for issuers.
Can I negotiate my interchange rates with Visa or Mastercard?
No, merchants cannot negotiate interchange rates directly. These fees are set centrally by the card schemes and apply uniformly to all acquirers.
However, you can influence the final interchange cost by ensuring your transactions qualify for the most favourable rates available. You can also negotiate the acquirer's margin, which is the fee they charge on top of the interchange and scheme fees in an interchange-plus pricing model.
How did Brexit impact my interchange costs?
For merchants selling between the UK and the European Economic Area (EEA), Brexit had a major impact. Card scheme rules reclassified these transactions from 'intra-regional' to 'inter-regional', making them exempt from the EU's interchange fee caps.
As a result, Visa and Mastercard increased the rates for most UK-EEA online transactions from the capped 0.2%/0.3% to around 1.15% for debit and 1.50% for credit. This led to a substantial increase in processing costs for many cross-border e-commerce businesses.
What is 'Interchange optimisation' and how does it work?
Interchange optimisation is the process of submitting transaction data in a way that qualifies for the lowest possible interchange rate. This involves practices like correctly using Address Verification Service (AVS) and Card Verification Value (CVV), implementing 3D Secure, and settling transactions promptly.
For business-to-business (B2B) transactions, submitting enriched Level 2 or Level 3 data (like invoice numbers and line-item details) can lower interchange costs significantly, by as much as 100 basis points on some corporate cards.
Do alternative payment methods (APMs) have interchange fees?
No, interchange is a specific feature of four-party card schemes like Visa and Mastercard.
Alternative Payment Methods, such as bank transfers (e. g. , SEPA, Open Banking), digital wallets that are not card-based, or Buy Now, Pay Later (BNPL) services, have their own distinct fee structures.
These are typically charged by the APM provider as a percentage of the transaction value, a fixed fee, or a combination, but the concept of a fee transfer from an 'Acquirer' to an 'Issuer' does not apply.
See how Interchange plays out in practice
Industries and regions where this term drives real acquiring, routing, or dispute decisions.
Related terms
Fees charged by Visa and Mastercard (or another scheme) to acquirers and issuers on every transaction.
Transparent acquirer pricing model that passes interchange and scheme fees through at cost with a fixed processor markup on top.
A single flat rate (e.g. 2.9% + 30¢) charged on all card transactions regardless of underlying interchange.
A card transaction where the issuer country differs from the acquirer country, attracting higher interchange and scheme fees.
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