Interchange
Interchange is the fee the acquirer pays the issuer on a card transaction. The card scheme sets the rate, and for most merchants it is the largest single component of the cost of accepting cards — but it is not the whole of that cost.
Also called: interchange fee
On a card transaction the money moves in one direction and the fees in the other. The issuer pays the acquirer for an authorized purchase, less interchange, which the issuer keeps. Interchange funds the issuing side of the business: the credit the issuer extends, the fraud losses it absorbs, the rewards it pays out. The scheme sets the rate; it does not receive it.
Three costs, not one
A merchant’s card cost has three separate parts, and calling all of it “interchange” hides where the money goes.
- Interchange — set by the scheme, paid through to the issuer.
- Scheme fees — set and kept by the scheme for operating the network.
- Acquirer margin — what the acquirer charges for underwriting, settlement and service.
Only the third is negotiable with an acquirer. Interchange-plus pricing shows all three on the statement; blended pricing rolls them into one rate and removes the ability to tell them apart. Rates themselves vary by card type, by where the merchant and cardholder are, by how the transaction was captured and by the merchant’s category — and in several markets, including the European Union and the United Kingdom, interchange on consumer cards is capped by regulation.
In practice
Interchange is set by the card scheme and paid to the issuer; the acquirer collects it and passes it on rather than keeping it. It is one component of a merchant’s card cost, alongside scheme fees and the acquirer’s own margin — and only that margin is open to negotiation.
Example
A merchant on blended pricing sees a single rate per transaction. On an interchange-plus statement the same transaction splits into three lines: interchange to the issuer, a scheme fee to the network, and the acquirer’s margin. Only the last line moves when the merchant renegotiates, so a quote that is mostly interchange has very little room in it.
Commonly confused with
| Term | How it differs |
|---|---|
| Merchant discount rate | The merchant discount rate is the merchant’s total cost of accepting a card; interchange is only the issuer’s share of it. |
| Scheme fees | Scheme fees are kept by the card network for running it; interchange passes through the network to the issuer. |
See also
- AcquirerAn acquirer is the institution that contracts with a merchant to accept card payments, submits those transactions into the card schemes, settles the merchant’s proceeds, and carries the acquiring-side financial exposure — including the cost of chargebacks the merchant cannot fund itself.
- IssuerThe issuer is the bank or licensed institution that gives a cardholder their card, holds the account the card draws on, decides whether each transaction is approved, and pays the acquirer for the ones it authorizes. It sits on the cardholder’s side of every card payment.
- Payment FacilitatorA payment facilitator, or PayFac, holds one master merchant account with an acquirer and onboards sub-merchants beneath it. Those sub-merchants transact under the facilitator’s account instead of each contracting with an acquirer, and the facilitator underwrites and settles them.
- ChargebackA chargeback is a forced reversal of a card payment, initiated by the cardholder’s bank rather than by the merchant. The money is taken back out of the merchant’s account under the card scheme’s dispute rules, whether or not the merchant agrees.