What Is Interchange and Who Actually Gets Your Processing Fees

The Three Parts of Every Processing Fee

Every card transaction fee splits three ways. The cardholder's issuing bank collects interchange. The card network, whether Visa, Mastercard, Discover, or American Express, collects an assessment. The processor that services the merchant keeps whatever remains as markup. On a typical $100 sale the issuer might take $1.80, the networks about 14 cents, and the processor 20 to 60 cents. All three parties touch every sale, but they are paid very differently.

Interchange is the wholesale fee, set by the card networks and paid to the cardholder's issuing bank, that is owed on every card transaction. Industry guides including Stripe's put it at 70% to 90% of total processing cost, which surprises merchants who assume the processor keeps the whole fee.

Who Sets Interchange and Why

Visa and Mastercard publish interchange tables twice a year, in April and October, with hundreds of rate categories. The rate depends on the card product, the merchant's industry, and how the transaction is entered. A regulated debit card dipped in person costs 21 cents plus 0.05% under the Federal Reserve's Regulation II. A corporate rewards card keyed in online can exceed 2.9%.

The fee exists to compensate issuing banks for fraud risk, the interest free float between purchase and repayment, and rewards funding. Rewards are the reason premium cards cost merchants more. The points come out of interchange.

Regulated debit is the one place law intervenes. Debit cards issued by banks with more than $10 billion in assets carry interchange capped at 21 cents plus 0.05%, plus a 1 cent fraud adjustment, under the Durbin amendment and the Federal Reserve's Regulation II, which is why debit heavy merchants see dramatically lower costs than credit heavy ones.

The Only Negotiable Number Is the Markup

Interchange and assessments are identical for every processor in the country. No sales rep can discount them, whatever the pitch implies. The markup is the only variable, and in the statements we review it ranges from under 0.2% at competitive shops to over 1% on padded accounts. On $1 million in annual volume, the difference between a 0.2% markup and a 0.8% markup is $6,000 a year for identical service.

This is where merchants overpay. Tiered and flat rate plans blend interchange and markup into one number, which hides how much the processor keeps. Two merchants with identical volume can differ by thousands of dollars a year on markup alone.

How to See Interchange on Your Statement

On an interchange plus statement, every transaction shows its interchange category, the network assessment, and the processor markup as separate lines. On flat rate or tiered statements the split is invisible by design. Ask any processor for a full interchange level statement. Refusal is itself an answer. Reading one statement this way takes about ten minutes and usually pays for itself immediately.

BatchOut, the payments division of Batch Group, prices merchant accounts on interchange plus so the wholesale cost and the markup are visible on every statement.