If you want to understand why card acceptance costs what it costs, start with interchange. It is the largest component of merchant card fees, and it is the line item that almost no one in the chain actually negotiates. Get interchange right and the rest of the module (scheme fees, the merchant side, Durbin, routing) snaps into focus. Get it wrong and you will keep mistaking the network for the party collecting the money.
We covered the four-party model and the anatomy of a swipe in the prior lessons. Here we zoom in on one arrow in that diagram: the money that moves from the acquirer to the issuer.
What interchange actually is
Interchange is a per-transaction fee paid by the acquirer (the merchant's bank) to the issuer (the cardholder's bank) on every card transaction. The direction matters and people get it backwards constantly. The merchant's side pays the cardholder's side.
The fee is set by the card network (Visa, Mastercard) as a published rate, not negotiated between the two banks on each transaction. The network defines the schedule; the banks apply it. Visa and Mastercard each publish full interchange tables, and Visa updates its rates twice a year, in April and October.
A common confusion: merchants do not "pay interchange" as a separate bill. The merchant pays its acquirer a bundled price, the merchant discount, and interchange sits inside that price. We will pull the merchant discount apart in lesson 5. For now, hold one fact: interchange is typically 70 to 80 percent of the total cost a merchant pays to accept a card. It is the dominant term, not a footnote.
Why it is not one number
There is no single interchange rate. The published schedules run to hundreds of rates, sorted by variables that the network has decided should change the price:
- Card type. Consumer credit, debit, and commercial or corporate cards carry very different rates. Premium rewards cards cost the merchant more, because the rewards are funded out of interchange.
- Merchant category. Supermarkets, fuel, travel, and charities sit in different buckets, often with caps or special programs.
- How the card was presented. Card-present (chip or tap) generally costs less than card-not-present (online or keyed), because the network prices in fraud risk.
- Data quality. Supplying richer transaction data can qualify a transaction for a lower rate.
So the "rate" you actually pay depends on the intersection of all of these. As a practitioner, this is the lever you work: the same sale can clear at materially different interchange depending on how cleanly the transaction is captured and what card the customer pulls out.
A worked example
Take a $100 in-store sale on a standard consumer Visa credit card. As of October 2024, a standard consumer Visa credit rate runs around 1.51 percent plus $0.10 per transaction.
Interchange on that sale: $100 x 1.51 percent = $1.51, plus the $0.10 fixed component, for $1.61. That $1.61 flows from the acquirer to the issuer. The merchant never sees it as a separate charge; it is buried in the merchant discount the acquirer keeps before paying the merchant out.
Now change one input. The customer pays online with a commercial card-not-present transaction, where a corporate or purchasing rate can reach 2.70 percent plus $0.10. On the same $100 sale, interchange jumps to $2.80. Same product, same price, nearly double the cost to accept, driven entirely by card type and channel. This is the practical reason "average interchange" is a near-useless figure for any specific business. Your mix is your cost.
Who keeps the money, and who sets the rate
Two separate questions, and conflating them is the usual error.
The network sets the rate but does not keep it. Interchange is revenue for the issuing bank, not for Visa or Mastercard. The networks earn their money from scheme and network fees, which is the next lesson. When a merchant complains about "Visa's fees," most of the dollar is actually going to the bank that issued the card.
The issuer keeps the interchange. This is what funds the issuing side of the business: rewards points, cash back, interest-free grace periods, fraud losses, and customer acquisition. Premium cards charge merchants more precisely because their rewards are richer, and interchange is where that money comes from.
This is the part worth internalizing. Interchange is a transfer from the merchant's side of the market to the cardholder's side, administered by a network that profits from setting it but does not pocket it. The economic question (covered in lesson 7 on issuer economics) is whether that transfer is sized correctly or whether the network's control over both sides lets it set the rate higher than a competitive market would.
Why it exists at all
Interchange is the answer to a coordination problem. A card network is a two-sided market. It needs both cardholders and merchants, and neither side joins unless the other is already there. Issuers carry the cost of putting cards in wallets, running rewards, and absorbing fraud. Merchants get the benefit of customers who can pay. Interchange is the mechanism that moves money from the side that benefits (merchants) to the side that bears the upfront cost (issuers), to keep both sides on the network.
That is the official economic rationale, and it is a real argument, not pure spin. The contested part is the level. Because the network sets a single rate that every issuer receives, issuers have no reason to compete down the price to merchants. Merchants, meanwhile, face the "honor all cards" rule and cannot easily refuse the expensive cards while taking the cheap ones. Regulators and merchants have argued for years that this structure props rates above where competition would land them.
That tension is why interchange is regulated in places and litigated everywhere. In the US, the Durbin amendment capped interchange on debit cards from large issuers at 21 cents plus 0.05 percent, effective October 2011, which is lesson 6. On the credit side, the long-running merchant antitrust case produced a proposed settlement that a federal judge rejected in June 2024 as too small; a revised settlement announced in November 2025 would trim swipe fees, and merchant groups are still fighting it. Interchange is the battlefield because it is where the money is.
Takeaway
Interchange is a network-set, per-transaction fee paid by the acquirer to the issuer, and it is the biggest single piece of what a merchant pays to accept cards. The network sets it but does not keep it; the issuer keeps it and uses it to fund rewards and fraud. It exists to balance a two-sided market, and it is fought over because the same body that sets the price also profits from the system that price sustains. When you read the rest of this module, anchor on that one arrow: acquirer to issuer, set by the network, funded by the merchant.