Finance
Interchange Fees
The fee your business's bank pays to the card-issuing bank on every credit or debit transaction, typically 1.5% to 3% of the sale, embedded in your processing rate.
When a customer pays with a card, interchange is the piece the card-issuing bank keeps. It is set by Visa and Mastercard schedules with hundreds of rates that vary by card type (debit vs credit, standard vs rewards, in-person vs online, corporate vs consumer). Your processor collects the full rate from you and passes interchange to the issuer.
For restaurants, retail, and any small business with meaningful card volume, interchange is often the second- or third-largest expense on the P&L after payroll and rent. A restaurant doing $2 million in card sales at a blended 2.6% is handing over $52,000 a year. Reducing that by 30 basis points is real money.
The two pricing models to know are (1) 'flat rate' (Square, Stripe standard, Toast), which quotes one number like 2.9% + $0.30, and (2) 'interchange-plus' (most traditional processors), which passes actual interchange through plus a small markup. Flat-rate is simpler but usually more expensive at volume; interchange-plus is worth negotiating once monthly card volume exceeds ~$50,000.
Common pitfalls
- Accepting the first processor quote without benchmarking; rates are highly negotiable at volume
- Downgrading a business to a punitive rate because the merchant category code or transaction data was submitted incorrectly; clean tokenization matters
- Adding a surcharge to card payments without complying with state law and card-network rules; some states prohibit it entirely
- Ignoring debit-card interchange (Durbin-regulated, much lower); routing more transactions as debit can save real money in food service and retail
Related service
See fractional CFO servicesHave a Interchange Fees situation in your business?
One team covering bookkeeping through fractional CFO, so the figure you just read about comes out of a ledger you can stand behind.