Understanding How Interchange Fees are Calculated
Interchange fees are calculated on the basis of several factors. These fees are set by the card networks – Visa, Mastercard, Discover and American Express – and can vary significantly, depending on:
- Type of card: Different types of card have different interchange rates. For instance, rewards cards, business cards and premium cards typically have higher interchange fees compared with those of standard debit or credit cards. Issuing banks often use interchange fees to fund reward programmes.
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- Transaction method: How the card is processed also affects the interchange fee. For example, card-present transactions, in which customers physically swipe, insert or tap a card at a point-of-sale (POS) terminal, usually have lower fees than card-not-present transactions, such as online or over-the-phone payments. This difference is because of the increased risk of fraud in card-not-present transactions.
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- Merchant category code (MCC): The type of business or industry also influences the interchange fee. Different types of business have different levels of risk and different average transaction sizes, which are reflected in their MCC.
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- Size of transaction: Typically, the interchange fee is a percentage of the total transaction amount plus a flat fee. So larger transactions incur larger interchange fees in absolute terms, although they might be smaller as a percentage of the transaction.
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- Processing details: Certain specifics of how the transaction is processed can also affect the rate. For example, transactions in which the card information is manually keyed in or transactions not settled within a certain time frame might be charged higher rates because of the increased risk of error or fraud.
The formula for calculating interchange fees is complex and varies between card networks, but it typically involves a combination of the factors above. Each card network publishes its own interchange rates twice a year, in April and October. These rates can change, although consumer card interchange fees are capped at 0.2% for debit and 0.3% for credit cards in the European Union.
Here are the interchange rates for each of the major US card networks as of 2023:
Visa
Visa's interchange fees depend on various factors, including the type of card, the transaction method and the business's industry. View the links below for the most up-to-date information.
Mastercard
Similar to Visa, Mastercard's interchange fees vary based on multiple factors.
Discover
Discover's interchange fees also depend on the type of card, transaction method and industry.
American Express
American Express operates slightly differently; it often acts as the issuing bank and the card network.