Interchange Fees Explained: What Every Merchant and Fintech Professional Should Know

What are Interchange Fees? 

Interchange is a fee paid by the merchant’s bank (the acquiring bank) to the cardholder’s bank (the issuing bank) every time a card transaction occurs. This fee compensates the issuing bank for processing costs, fraud risk, and funding the transaction. 

Why Do Interchange Fees Exist? 

Interchange fees help cover: 

• Transaction processing infrastructure
• Fraud prevention and security costs
• Incentives and rewards programs for cardholders (think cashback or air miles) 

Without interchange, issuers would have less incentive to offer widely accepted payment instruments like credit and debit cards. 

Who Pays Interchange Fees? 

Merchants indirectly pay interchange fees via the Merchant Discount Rate (MDR) — the total fee charged by their payment processor or acquiring bank for accepting card payments.

MDR typically includes: 

• The interchange fee
• The card network fee (e.g., Visa, Mastercard)
• The acquirer’s markup 

Do Interchange Fees Vary? 

Yes — interchange fees differ based on: 

• Payment method: Credit card, debit card, prepaid card, digital wallet
• Merchant category: Airlines, retail, dining, etc.
• Transaction type: Online vs. in-store, domestic vs. cross-border 

Why Does It Matter? 

Understanding interchange fees is crucial for: 

• Merchants: To manage payment acceptance costs
• Fintechs: To design competitive and sustainable payment products
• Regulators: To ensure fairness and efficiency in payment ecosystems 

Interchange fees are an essential part of the global card payments ecosystem. While often seen as a cost for merchants, they enable a seamless, secure, and convenient payment experience for consumers worldwide.