Interchange Fees: What Small Businesses Need to Know

Interchange fees typically cost around 1% to 3% of a transaction, which can add up quickly for a small business. Here’s how they work.
Jan 27, 2022

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An interchange fee is a transaction fee a business must pay when a customer uses a card to purchase a product or service. These fees compensate the bank that issued the card for the costs of handling the transaction,  including potential fraud and bad debt expenses.

On average, interchange fees are around 1% to 3% of a transaction, but they can vary depending on the type of card used and where the sale takes place. Card networks like Visa and Mastercard set their own interchange rates, which they update twice a year.

Your merchant account provider or payment processor deducts the interchange fee from the sales amount before the funds are deposited into your account. The provider may add an additional payment processing fee for using their service.

How are interchange fees calculated?

Mastercard, Visa, Discover, American Express and other card networks update their own interchange rates periodically. They provide rate tables that list individual rates based on product type, merchant type, card type and transaction type (card present, online and keyed).

The interchange fee for each transaction is typically calculated based on a percentage of the sale amount, plus a set transaction fee. The exact rate that applies to each card transaction can vary based on the card network, card type and transaction type. For example:

  • The rate for a retail merchant is generally around 1.5% plus 10 cents per card-present transaction.

  • If the same transaction were manually entered or keyed, a higher rate of around 1.9% would be likely.

  • If the customer used a debit card instead of a credit card for the purchase, the rate would be lower at about 1%, with a higher transaction fee of 15 cents.

Most payment processors use one of two pricing models to determine the amount your small business will be charged for a card transaction:

  • Interchange-plus pricing is where you pay the associated interchange rate plus a markup to cover other fees and the processor’s services.

  • Flat-rate pricing offers a set rate, based on the transaction type (card-present, online or keyed), to cover interchange fees, assessment fees and the processor’s services.

Major credit card interchange rates for 2022

Visa and Mastercard change their credit card rates twice a year and publish them online. Discover and American Express don’t publish their rates online, but the payment processor Helcim does publish rates for these networks. Here are the rates as of May 2022.

Card network

Card-present

Card-not-present

Debit card

Visa

1.29 – 2.5% plus 10 cents.

1.58 – 2.7% plus 10 cents.

0.05% plus 21 or 22 cents.

Mastercard

1.65 – 2.7% plus 10 cents.

1.95 – 2.7% plus 10 cents.

0.05% plus 21 or 22 cents.

Discover

1.56 – 2.3% plus 10 cents.

1.89 – 2.4% plus 10 cents.

0.05% plus 22 cents

American Express fees work a little differently, through the OptBlue program for small businesses. The rates, published by Helcim, are below.

  • Retail: 1.6-2.4% plus 10 cents depending on transaction size.

  • Restaurant: 1.6-2.85% plus 4 to 10 cents depending on transaction size.

How can businesses save on fees?

It may be appealing to prioritize cash, debit cards and card-present transactions to keep your interchange fees low — but that could limit payment options for your customers. To lower your processing fees without limiting options, take these steps.

Compare pricing models

You can reduce the fees you pay for card processing by comparing pricing models based on the most common card types used at your business. For example, interchange-plus fees can often be more affordable than flat-rate fees if most of your transactions are from debit cards. If most of your payments come from corporate credit cards and rewards credit cards, flat-rate fees may be a better fit.

When comparing pricing models, factor in additional costs, such as monthly payment processor fees, that can add to transaction costs. Processors generally have different rates for different business types. For example, some processors have lower rates for a restaurant than for an e-commerce business. Comparing fees from two to three companies can help you make the most cost-effective choice for your business.

Look for volume discounts

Some payment processors offer volume discounts that reduce the fee charged per transaction. These discounts are often based on monthly credit card dollar volume, but other discounts may be available based on the number of transactions or average transaction amount.

Consider adding a surcharge for credit card use

A surcharge is an extra fee charged by the business to customers who use a credit card. It can be used to recover the costs of interchange fees and other credit card processing expenses.

The fee can only be applied to credit card transactions, not debit or prepaid card transactions – and certain states prohibit or limit surcharging. Because of these limitations, surcharges may not work for your business.

Dalia Ramirez, a writer at NerdWallet, contributed reporting to this article.