Interchange is the wholesale fee that a merchant’s bank (the acquirer) pays to a cardholder’s bank (the issuer) every time a customer pays with a credit or debit card. Visa and Mastercard publish these rates twice a year, in April and October, and the rate that applies to any single transaction depends on the card type, the way the card was entered, and the industry the business operates in. Interchange is the single largest component of what a business pays to accept cards, usually 70 to 90 percent of total processing cost, which makes it the first number any owner should understand before signing a processor contract.
ProTech Payments, based at 25140 Kingsland Blvd STE 180 in Katy, Texas, helps businesses across Houston, Sugar Land, Cypress and Fort Bend County read their statements down to the interchange line. The reason this matters: two processors can quote the same headline rate yet leave very different amounts in your bank account, because interchange is fixed by the card networks while the markup on top of it is set by the processor. A clear free statement analysis separates the part you cannot change (interchange) from the part you can negotiate (the processor margin).
This guide explains where interchange comes from, how the categories are priced, what a real rate looks like for a Visa swipe versus a keyed B2B card, and how Texas businesses can legally pass those costs to customers through programs like dual pricing and surcharging.
What interchange is and who collects it
Every card transaction moves through four parties. The cardholder pays the merchant, the merchant deposits the sale through an acquirer, the acquirer routes the transaction through Visa or Mastercard, and the issuer (the bank that gave the customer the card) funds the sale. Interchange is the fee the acquirer pays the issuer for that funding and for taking on the risk of the cardholder not paying.
The card networks set it, not the processor
A common misconception is that the processor invents interchange to pad its bill. It does not. Visa, Mastercard, Discover and American Express each publish a public rate schedule, and the issuer earns the interchange. Your processor and acquirer collect it on the issuer’s behalf and add their own markup separately. This is why interchange is identical whether you process through Fiserv (formerly First Data), TSYS, or any other platform: the wholesale cost is the same, and the only variable a processor controls is the margin.
Why interchange exists
Interchange funds the rewards, fraud protection, and credit risk that issuers carry. A premium travel rewards card costs the issuer more to operate than a no-frills debit card, so it carries a higher interchange rate. The merchant ultimately pays for the cardholder’s airline miles, which is the structural reason rewards cards are more expensive to accept than standard cards.
How an interchange fee is set on each transaction
Interchange is not a single percentage. It is a grid of hundreds of categories, and each transaction is sorted into one of them automatically based on data passed at authorization. Understanding the inputs gives you direct control over which rate you qualify for.
The data points that decide the rate
Five factors push a transaction into a higher or lower interchange bucket:
- Card type: debit, regulated debit, standard credit, rewards credit, commercial, or corporate.
- Entry method: EMV chip dip, contactless tap, magnetic swipe, or keyed-in (card not present).
- Merchant category code (MCC): the four-digit code that classifies your industry.
- Transaction data: whether you pass Level 2 and Level 3 data such as tax amount and line-item detail.
- Settlement timing: whether the batch settles within the network’s window.
Card-present versus card-not-present
A chip-read or tapped card carries the lowest interchange because the issuer can verify the card is genuinely present, which cuts fraud risk. The same card keyed into a virtual terminal without an address match costs more, because the issuer assumes more fraud exposure. Card-not-present transactions can run 0.30 to 0.50 percent higher than the swiped equivalent, which is why online and phone businesses pay more than a retail counter. Our guide on how credit card payments work walks through the full authorization-to-settlement path.
The three layers of a card fee
When a customer pays $100 and you receive roughly $97.50, the missing $2.50 splits into three distinct pieces. Separating them is the core skill of reading a statement.
Layer one: interchange
This is the wholesale fee paid to the issuer, the largest of the three and non-negotiable. On a typical rewards credit card swiped in person, interchange runs about 1.65 percent plus $0.10.
Layer two: assessments
Visa and Mastercard charge a small network fee, the assessment, on every transaction. It is roughly 0.13 to 0.15 percent and, like interchange, is fixed by the network and identical across processors.
Layer three: processor markup
This is the only piece your processor controls and the only piece you can negotiate. On an interchange-plus contract it might be 0.25 percent plus $0.10. On a tiered or bundled plan the markup is hidden inside vague “qualified” and “non-qualified” buckets, which is where overcharging hides. Our interchange-plus pricing explained article shows how to read this line.
Interchange categories and sample rates
The table below shows representative US interchange rates for common Visa and Mastercard categories. Published rates change every April and October, so treat these as illustrative of the relationships between categories, not as a live quote.
| Card / category | Entry method | Sample interchange rate |
|---|---|---|
| Regulated debit (large issuer) | Chip or tap | 0.05% + $0.21 |
| Standard credit | Chip or tap | 1.51% + $0.10 |
| Visa rewards credit | Chip or tap | 1.65% + $0.10 |
| Visa signature / premium rewards | Chip or tap | 2.10% + $0.10 |
| Any credit | Keyed (card not present) | 1.80% + $0.10 |
| Commercial / corporate card | Keyed, no Level 2/3 | 2.50% + $0.10 |
| Commercial card with Level 3 data | Keyed, Level 3 | 1.90% + $0.10 |
Two patterns stand out. First, regulated debit is cheap because the Durbin Amendment to the Dodd-Frank Act capped debit interchange for banks with over $10 billion in assets at $0.21 plus 0.05 percent. Second, commercial cards are the most expensive category, but passing Level 3 data (tax, customer code, and line items) can drop the rate by half a point or more, which is why B2B and wholesale businesses should always process with full data. See our B2B payment processing guide for the data fields that qualify.
Pricing models: how processors pass interchange to you
The same interchange cost reaches your statement through three very different pricing structures. The model you sign determines how much of the wholesale cost you can actually see.
Interchange-plus (the transparent model)
Interchange-plus shows the true network rate on each transaction and adds a fixed, disclosed markup, for example “interchange + 0.25% + $0.10”. You see exactly what the issuer earned and exactly what the processor earned. This is the model ProTech recommends for most established businesses because the markup cannot drift.
Tiered pricing (the opaque model)
Tiered pricing sorts transactions into qualified, mid-qualified, and non-qualified buckets with marked-up rates for each. The processor decides which transaction lands in which tier, and rewards cards conveniently fall into the expensive “non-qualified” bucket. Most overpaying merchants are on a tiered plan.
Flat-rate pricing
Flat-rate providers like Square and Stripe charge one blended rate, around 2.6% to 2.9% plus a fixed cents amount, regardless of the underlying interchange. It is simple and predictable but expensive at volume because you pay the same rate on a cheap debit card as on a premium rewards card. Our square fees explained breakdown shows when flat-rate stops making sense.
Dual pricing and cash discount
A fourth approach changes who pays interchange entirely. A dual pricing program displays a card price and a cash price, and the card price covers the processing cost, so the customer who chooses to pay by card absorbs the fee. This is the same mechanism behind a cash discount program, distinct from a surcharge and fully compliant when implemented correctly.
Common interchange mistakes that cost merchants money
Most overcharges trace back to a handful of avoidable errors. A statement review catches all of them.
Downgrades from missing data
When a transaction fails to qualify for its target category, it “downgrades” to a higher rate. The usual causes are settling a batch late, keying a card without an address verification (AVS) match, or omitting Level 2/3 data on a commercial card. Downgrades can add 0.50 to 1.00 percent silently.
Staying on tiered pricing too long
A new business may start on a tiered plan for simplicity, then keep it for years while volume grows. At even $30,000 a month in card volume, moving from a padded tiered plan to interchange-plus commonly saves $150 to $400 per month.
Skipping PCI compliance
Non-compliance with PCI DSS triggers monthly non-compliance fees that have nothing to do with interchange but inflate the effective rate. Maintaining compliance also reduces the breach exposure that drives chargebacks. Read PCI compliance for small business for the self-assessment basics.
Ignoring the effective rate
The number that actually matters is the effective rate: total monthly fees divided by total monthly volume. A 3.2 percent effective rate on mostly debit-and-standard-credit volume signals a padded plan worth reviewing.
Interchange and Texas: passing the cost to customers
Texas law lets merchants offset interchange directly, and that is where local businesses gain an edge. Since the 2018 settlement that lifted the federal surcharge ban in most states, Texas merchants can legally surcharge credit card transactions or run a dual pricing program, subject to network caps and disclosure rules.
Surcharging rules that apply in Texas
A credit card surcharge in Texas is capped at the merchant’s actual cost of acceptance, not to exceed 3 percent under network rules, and it cannot be applied to debit cards even when run as credit. You must post signage at the entrance and point of sale and register the surcharge with Visa and Mastercard 30 days in advance. Our credit card surcharge laws in Texas guide covers the disclosure requirements in detail.
Why Katy and Houston businesses choose dual pricing
Many Fort Bend and Houston-area businesses prefer dual pricing over surcharging because it sidesteps the debit-card restriction and presents cleanly as a cash discount. A Katy restaurant or a Cypress auto shop posting both prices keeps the card price competitive while recovering nearly all interchange. ProTech sets this up for merchant services in Katy, TX and across Houston, pairing it with Clover hardware through our point-of-sale and full merchant services programs. Estimate your savings with the dual pricing savings calculator.
Frequently asked questions
Is interchange the same for every processor?
Yes. Interchange is set by Visa and Mastercard and paid to the card-issuing bank, so the wholesale rate is identical no matter which processor you use. The only difference between processors is the markup they add on top of interchange, which is the part you can compare and negotiate.
Can I avoid paying interchange?
You cannot eliminate interchange, but you can shift who pays it. A dual pricing or cash discount program passes the processing cost to customers who choose to pay by card, so card-paying customers absorb the fee instead of the business. Accepting more chip-read debit and qualifying for lower categories also reduces what interchange you do pay.
Why did my rate go up even though I did not change anything?
Two likely causes. Visa and Mastercard update interchange rates in April and October, so your wholesale cost can rise on its own. The other common cause is a shift in your card mix, for example more customers paying with premium rewards cards or more keyed card-not-present sales, both of which carry higher interchange.
What is the difference between interchange and assessments?
Interchange is paid to the cardholder’s bank and is the larger fee, typically 1.5 to 2.5 percent on credit. Assessments are a separate, smaller fee (about 0.13 to 0.15 percent) paid to Visa or Mastercard for use of the network. Both are fixed by the networks; the processor markup is the third, negotiable piece.
How does Level 3 data lower my interchange?
Level 3 data passes detailed line-item information such as tax amount, product codes, and quantities along with the transaction. Visa and Mastercard reward this detail with lower interchange categories for commercial and corporate cards because it reduces disputes and fraud. B2B merchants who key commercial cards can save half a percent or more per transaction by submitting it.
What is a good effective rate for a small business?
It depends on your card mix, but a retail business taking mostly debit and standard credit in person should often land near 2.0 to 2.5 percent on interchange-plus. A card-not-present or rewards-heavy business runs higher. The honest answer comes from a statement analysis that compares your effective rate against your actual interchange.
Talk to ProTech Payments
Interchange is the floor under every card fee you pay, and the markup stacked on top is where most businesses overpay without knowing it. ProTech Payments reads your statement line by line, identifies downgrades and padded tiers, and shows what a Katy or Houston business should actually be paying.
Start with a no-cost free statement analysis to see your true effective rate and where interchange is leaking, then get started with an interchange-plus or dual pricing setup built for your volume. You can also contact our Katy team directly to talk through your card mix and equipment.
