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 owner-led 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
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