Lesson 2: Understanding Interchange

Learn all about Interchange and how things got to be this bad. With cards falling into hundreds of categories, we will guide you through the convoluted mess that is the backbone of the merchant processing industry.

Interchange Fees are the basis of the credit card processing industry. These fees, which are public information, represent the amount of money that your merchant account provider/acquirer withhold from your payment and pay to the bank or other financial institution that issued your customers card.
The Interchange Rates are set by the Card Brands(Visa, Mastercard, Discover, and American Express), and they vary based on the type of credit card, what type of merchant is accepting the card, and what method is used to process the card. The cards brands typically make changes to rates, introduce new card types, or modify the qualification requirements twice annually in April and October.

The 3 Categories

There are 3 basic categories of cards, with each category having different levels and types of cards within it. The categories are debit(check cards), consumer credit, and business credit.

Debit cards have the lowest interchange rates, and were recently regulated as part of the 2011 Financial Reform Legislation’s Durbin Amendment. Many businesses benefitted from the interchange rate reduction after the legislation passed, but only if they were being billed using the Interchange Pass Through Billing Method. If a business was being billed using any other method, their processor made windfall profits and the businesses did not realize any of the reduced processing fees. The legislation reduced the percentage the large banks could collect for check card transactions to .05% from .95% – 1.65%. The regulation only applies to card issued by banks with over 10 Billion in assets, but that accounts for almost 80% of all accounts in the United States.

Consumer credit cards are the most common card types businesses with average transaction amounts over $50 will process. The interchange fees from consumer credit cards, as well as the interest cardholders pay on their outstanding balances, are very large revenue centers for banks. This is why you see so many commercials and sponsorships by issuing banks. If you ever wondered how the banks provide “cash back”, fuel perks, or airline miles, it is from the revenue generated by the interchange charges they receive when businesses accept cards from their customers. Interchange rates for consumer cards range from 1.51% for basic credit cards to 2.40% for high end rewards cards.

Business credit cards have the highest interchange rates, but most businesses who deal primarily with general consumers will not process very many business cards. Some business credit cards also provides rewards just like the consumer cards, but they also provide additional reporting of the spending done on the cards to the cardholder, and the banks pass that cost onto the businesses that accept their customer’s cards. Interchange rates for business credit cards range from 1.95% to 3.26%. It is becoming more common for employees of corporations and small business owner to use Purchasing Cards for almost all of their spending because of the reporting provided to them by their bank, as well as the additional perks the receive for general use of the cards.

Let Us Slice Your Fees!

Our exclusive FeeNinja Program provides you with a complete professional proposal with fair pricing and reasonable rates that you then take to your existing merchant account provider and ask them to match. It’s really that simple! You keep your existing merchant account exactly how it is but with a much better fee structure!


Below are samples of the interchange charges for a retail business, a restaurant, a hotel, and an e-commerce website. If you review your statement and do not see a table with the card type categorized into individual line items like shown below, you are on the wrong type of billing system. If you see categories called Qualified, Mid Qualified, or Non Qualified, you are on a Tiered System and need to get that changed ASAP! If you see line item categories like the ones below, but they have the letters “BB” with the previous month’ abbreviation in description as well, you are on an “Enhanced Bill Back System and need to get that changed ASAP! In conclusion, you want your statements to show you line item detail what cards types you accepted, the volume and number of transactions, and what the actual interchange rate is for those cards for your industry. You can reference the information provided on your statement with the rate tables published by Visa, Mastercard, and Discover.