What is Interchange?
Interchange fees, often called swipe fees, are the baseline costs associated with processing credit and debit card transactions. These fees are set by card networks (like Visa and Mastercard) and are paid by the merchant’s bank to the customer’s bank.
How are Interchange Fees calculated?
Interchange fees are typically a percentage of the transaction plus a fixed per-item fee. The exact amount varies based on several factors:
Card Type: Whether the customer uses a debit (lowest fee), credit, or premium rewards card (highest fee).
Transaction Method: Whether the card was swiped/inserted/tapped in person or entered manually online.
Business Industry: Different industries have different rate structures which are determined by the payment processor.
Why do Interchange fees exist?
Interchange fees cover the costs of infrastructure and risk involved in the global payment ecosystem:
Bank Compensation: They reimburse the customer's bank for the costs of maintaining accounts and the risk of extending credit.
Fraud Prevention: Fees fund the sophisticated security measures used to verify transactions and protect against unauthorized use.
Network Maintenance: They support the technical infrastructure that allows money to move instantly between banks worldwide.
Interchange vs. Merchant Service Fees
It is important to distinguish between these two:
Interchange Fees: These are non-negotiable costs set by the card networks that go to the issuing banks.
Merchant Service Fees: These are the fees charged by our processor (Fiserv) for the service of safely and compliantly handling the transaction on your behalf.
Looking for a quick overview? See Mallow's fee structure explained for a plain-English summary of card fees, ACH fees, and what Interchange+ means in practice.