Interchange Fees Explained

Interchange fees are charged to merchants by card networks for processing a debit or credit payment. These fees make up a majority of the cost involved in accepting a card payment. Though interchange fees are collected by the card networks, they are paid out to the bank that issued the payment card. The average interchange rate for a credit card payment is around 1.81%, while the typical interchange for debit cards is 0.3%.

What Is An Interchange Fee?

Whenever a credit card or debit card transaction is processed, funds are transferred from the issuing bank to the acquiring bank, sometimes called the merchant bank. Card associations, like Visa and Mastercard, facilitate the process. For the service they provide, associations collect a fee from the acquiring bank – this is what's known as the interchange fees. Typically, the interchange fee is comprised of a percentage of the total transaction plus some fixed amount (e.g. 2% + $0.10). While the card associations assess and determine the fees, they are paid to the issuing bank. The card associations instead collect a separate fee called the network fee, though this is not considered to be a part of the interchange. The network fee is usually far smaller, averaging somewhere around 0.05%.

Visa & Mastercard Average Interchange Fees

Visa and Mastercard are the biggest card network companies in the world, so theirs are the interchange fees merchants will face most often. For both companies, the interchange will depend largely on the type of card used. As mentioned above, debit cards have significantly lower interchange rates than credit card ones. Furthermore, high-end rewards credit cards have higher interchange fees than non-rewards variants.

Interchange fees for both Visa and Mastercard will also vary between different types of transactions.

Card TypeInterchange Rate (Swiped)Interchange Rate (Keyed)
Visa Debit Retail CPS0.800% + 15¢1.650% + 15¢
Visa Debit Retail CPS Regulated0.050% + 22¢0.050% + 22¢
Visa Debit Retail Business1.700% + 10¢2.450% + 10¢
Visa Debit Retail Business Regulated0.050% + 22¢0.050% + 22¢
Visa Credit Retail CPS1.510% + 10¢1.800% + 10¢
Visa Credit Retail Rewards Traditional1.650% + 10¢1.950% + 10¢
Visa Credit Retail Rewards Signature2.300% + 10¢2.700% + 10¢
Visa Credit Retail Rewards Signature Preferred2.100% + 10¢2.400% + 10¢
Visa Credit Retail Corporate2.100% + 10¢2.650% + 10¢
Mastercard Debit Retail Swipe1.050% + 15¢1.600% + 15¢
Mastercard Debit Retail Regulated0.050% + 22¢0.050% + 22¢
Mastercard Credit Retail Consumer1.580% + 10¢1.890% + 10¢
Mastercard Credit Retail Enhanced1.730% + 10¢2.040% + 10¢
Mastercard Credit Retail World1.770% + 10¢2.050% + 10¢
Mastercard Credit Retail World Elite2.300% + 10¢2.500% + 10¢
Mastercard Credit Retail Corporate2.500% + 10¢2.650% + 10¢

Visa has the highest number of cards in circulation as of 2016 with 52% of the market share. Mastercard comes in at number two, with 31.6% of the market.

Discover Average Interchange Fees & Rates

Discover interchange fees work similarly to Visa and Mastercard. The major distinction between these cards is that they distinguish between recurring payments and one-off payments. If your business charges a recurring monthly fee to a customer, you will generally pay a lower interchange fee than you would for an equivalent one off.

Card TypeDiscover Interchange Fee
Discover Debit1.020% + 16¢
Discover Debit Regulated0.050% + 22¢
Discover Debit Keyed1.620% + 16¢
Discover Debit Keyed Regulated0.050% + 22¢
Discover Consumer1.560% + 10¢
Discover Rewards1.710% + 10¢
Discover Premium1.710% + 10¢
Discover Premium Plus2.100% + 10¢
Discover Commercial2.300% + 10¢
Discover Keyed Consumer1.870% + 10¢
Discover Keyed Rewards1.970% + 10¢
Discover Keyed Premium2.000% + 10¢
Discover Keyed Premium Plus2.150% + 10¢
Discover Keyed Commercial2.300% + 10¢
Discover Debit Recurring1.200% + 5¢
Discover Debit Recurring Regulated0.050% + 22¢
Discover Recurring Consumer1.200% + 5¢
Discover Recurring Rewards1.200% + 5¢
Discover Recurring Premium1.200% + 5¢
Discover Recurring Premium Plus1.800% + 5¢
Discover Recurring Commercial2.300% + 10¢

As of 2016, Discover cards accounted for approximately 8.1% of all cards in circulations.

American Express Interchange Rates & Discount Rate

American Express doesn’t charge interchange fees, and instead imposes a discount rate. Though different in name, these are the same functionally. The American Express discount rate is composed of a percentage plus some fixed a fixed transaction fee.

The fees charged by American Express are largely dependent on the type of business being serviced. This is unlike Discover, Visa and Mastercard, all of whom have other qualifying factors impacting their interchange fees, such as whether a card is considered premium or not. Note that in certain instances, like with retail and restaurant transactions, your discount rate will be 0.30 points higher if it is keyed in and not swiped.

Business TypeAmerican Express Discount Rate
Fast Food Restaurant, lodging, mail order & internet, telecommunications, other transportation3.50%
Restaurant3.50% + $0.05
Independent Gas Stations3.25%
Retail2.89% + $0.10
Services, Wholesale & All Other2.89% + $0.15
Office-based Doctor, Dentist, Orthodontist2.55%
Healthcare not office-based2.89% + $0.15
Tuition2.40%
Supermarket2.30%

Traditionally, American Express has more premium credit cards in their portfolio leading to higher interchange fees. While the fees themselves are higher, Amex also reportedly has cardmembers who tend to spend more than the average Visa or Mastercard user. While interchange fees have been historically higher with American Express than their competitors, many merchants choose to accept their cards to be able to do business with their high-spending cardholders.

As of 2016, American Express cards account for 7.5% of all cards in circulation.

Sources

American Express 2016 Annual Report
Mastercard 2016 Annual Report
Discover 2016 Annual Report
Visa 2016 Annual Report
Visa Annual Report
Helcim Discover Interchange Rates

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