What Are Interchange Fees, and How Are They Calculated?

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If you accept credit or debit card payments, you’re paying interchange fees with every sale. These small but recurring fees can have a big impact on your business’s bottom line.

This guide breaks down exactly what interchange fees are, how they work, and how your choices at the point of sale influence the fees you pay.

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What Are Interchange Fees

What are Interchange Fees?

Interchange fees are charges banks pay each other whenever a customer uses a debit or credit card to make a purchase.

When a card transaction occurs, the cardholder’s bank charges the merchant’s bank a fee to cover the costs associated with processing the transaction and maintaining the payment infrastructure. 

While the merchant’s bank initially pays the interchange fee, it may pass some of these costs on to the merchant through fees or other arrangements. 

Businesses can add a surcharge to transactions to cover the cost of processing card payments,  including interchange fees. However, there are regulations in place which they must follow.

The UK government has implemented rules that cap the surcharges businesses can impose on card transactions. As of February 2023, the interchange fee cap is limited to

  • 0.2% of the transaction value for payments made with consumer debit cards, including prepaid cards,
  • 0.3% for payments made with consumer credit cards.

This cap does not apply to commercial cards. 

You must not charge your customer more than the cost incurred to process their payment. 

That means you can’t charge a flat fee for multiple payment methods, but you can impose a standard payment charge using the same method (e.g. all credit cards) based on the average transaction costs. 

Businesses must also clearly disclose any surcharges to customers before purchasing. 

What are Interchange+ and Interchange++ Pricing?

Traditionally, businesses have paid interchange fees using a flat-rate pricing model.

This means companies would pay a single fixed fee for each transaction, regardless of the type of card used, transaction amount, or interchange fees.

The flat fee typically covers all costs associated with processing the transaction, including interchange fees, network fees, and the processor’s markup.

Although flat-rate pricing is easier to understand and more predictable, it’s not always the most cost-effective option, especially for businesses with high transaction volumes or transactions involving higher interchange rates.

In these situations, interchange+ and interchange++ pricing models are

Interchange+ and Interchange++ pricing models offer businesses greater insight into their transaction costs than traditional flat-rate pricing models.

Interchange+ Pricing

In Interchange+ pricing, your transaction costs are separated into two components.

In addition to paying the interchange fee set by the card network, you’ll also pay the payment processor’s markup, which covers their costs and profit margin. 

Interchange+ pricing offers transparency as businesses can see the exact interchange fee charged by the card networks and the additional fee charged by the processor.

Interchange++ Pricing

Interchange++ pricing builds upon Interchange+ by providing even more detailed breakdowns of transaction costs.

Your fees will include the interchange fee, the processor’s markup, and other charges associated with your card transactions.

These additional fees may include scheme fees, network fees, and other processing costs.

Interchange++ pricing offers the highest level of transparency, allowing businesses to understand all the components of their transaction costs.

While more complex, Interchange++ pricing can sometimes result in lower overall business costs, especially for high-volume transactions or transactions with lower interchange rates.

How are Interchange Fees Calculated?

Interchange rates may consist of a percentage of the transaction amount, a flat fee per transaction, or a combination of both. 

For example, if the interchange rate for a credit card transaction is 0.3% and the transaction amount is £100, the interchange fee would be £0.30 (£100 x 0.3%).

Interchange fee rates aren’t fixed and are influenced by the pricing model and other factors, including:

  • Card Type: Credit cards often have higher interchange rates than debit cards. Similarly, interchange rates for business cards are usually higher than for consumer cards.
  • Transaction Amount: Higher-value transactions may incur higher fees.
  • Merchant Category Code: Your MCC is a four-digit code that refers to the type of products or services you sell. Different industries may have varying interchange fee rates depending on risk factors.
  • Merchant Size: Larger businesses may have negotiating power to secure lower rates.
  • Card Network: The card network (e.g., Visa, Mastercard) sets interchange rates, each having different fee schedules. 
  • Risk Factors: Higher-risk transactions, such as those with a higher chance of fraud or chargebacks, may have higher fees.
  • Processing and Authorisation Method: Online authorisations may incur lower fees due to the immediate verification process. Similarly, card-present transactions usually have lower interchange rates than card-not-present transactions, reflecting the differences in fraud risk and processing costs.
  • Location: Different countries or regions may have different fee structures based on local regulations and market conditions.
  • Currency Conversion: Transactions involving currency conversion may have different interchange rates based on exchange fluctuations and additional processing fees.
  • Cardholder Rewards Programs: Cards with rewards programs or perks for cardholders may have higher interchange rates to cover the costs of these benefits.

Visa Interchange Fees

The fees in the table below relate to domestic transactions made with Visa cards within the UK. International transaction fees may vary.

Rates are accurate as of February 2024.

ProductAuthorisation & Processing MethodGeneral Interchange Fee
Visa Consumer Debit & Visa Consumer PrepaidSecure0.20%
Non-Secure0.20%
Visa Consumer Credit & Visa Consumer Deferred DebitSecure0.30%
Non-Secure0.30%
Visa Business DebitCard Present – Contactless0.50%
Card Present – EMV® Chip0.75%
Card Not Present1.15%
Standard1.15%
Visa Business PrepaidSecure1.40%
Non-Secure1.40%
Visa Business Credit & Visa Business Deferred DebitCard Present – Contactless1.35%
Card Present – EMV® Chip1.35%
Card Not Present1.65%
Standard1.65%
Visa Business Credit – Small Market ExpenseStandard0.30%
Visa Platinum Business Debit &
Visa Infinite Business Debit
Card Present – Contactless0.75%
Card Present – EMV® Chip1%
Card Not Present1.40%
Standard1.40%
Visa Platinum Business Credit & Visa Infinite Business CreditCard Present – Contactless1.60%
Card Present – EMV® Chip1.60%
Card Not Present1.90%
Standard1.90%
Visa Corporate CardPresent – Contactless1.55%
Card Present – EMV® Chip1.55%
Card Not Present1.85%
Standard1.85%
Visa Corporate – Large Market EnterpriseStandard0.30%
Visa Purchasing Card & Visa FleetPresent – Contactless1.55%
Present – EMV® Chip1.55%
Card Not Present1.85%
Standard1.85%

Mastercard Interchange Fees

The fees in the table below relate to domestic transactions made with Mastercard and Maestro cards within the UK. International transaction fees may vary.

Business to Business (B2B) interchange rates apply to all businesses except airlines, vehicle rental, passenger railways, restaurants and eating establishments. 

Rates accurate as of February 2024.

Payment ProductProcessing & Authorisation MethodGeneral PaymentsB2B
Mastercard Consumer Credit ContactlessChip & PinMerchant UCAFFull UCAFEnhanced ElectronicBaseMasterPass WalletPurchase at ATMPurchase at ATM (late presentment)0.30%
Approved Charity WaiverMerchant Rebate
Mastercard Instalment Payment0.30%
Mastercard Consumer DebitMastercard Consumer PrepaidDebit Mastercard ConsumerContactlessContactless TerminalContactless High-ValueChip & PINMerchant UCAFFull UCAFEnhanced ElectronicBaseMasterPass WalletPurchase at ATMPurchase at ATM (late presentment)0.20%
Approved Charity WaiverMerchant Rebate0%
Maestro ConsumerMaestro Consumer PrepaidContactlessContactless TerminalContactless CardChip & PinSecure e-& m-CommerceMail Order / Telephone OrderBaseMasterPass WalletPurchase at ATMPurchase at ATM (late presentment)0.20%
Approved Charity WaiverMerchant Rebate0%
Mastercard CorporateMastercard FleetCardMastercard Purchasing CardMastercard World PreferredContactlessChip & PINPurchase at ATM1.50%1.50%
Enhanced ElectronicMasterPass1.60%1.60%
BasePurhcase at ATM (late presentment)1.90%1.90%
Approved Charity WaiverMerhcant Rebate0%0%
Large Ticket Level 11% + £121% + £12
Large Ticket Level 20.75% + £270.75% +27
Incentive-0.30%-0.30%
Mastercard Corporate PrepaidContactlessChip & PINEnhanced ElectronicMasterPassPurchase at ATM1.80%1.80%
BasePurchase at ATM (late presentment)1.90%1.90%
Incentive-0.30%-0.30%
Mastercard BusinessMastercard Professional CardMastercard Prepaid CommercialContactlessChip & PINPurchase at ATM1.30%1.30%
Enhanced ElectronicMasterPass1.40%1.40%
BasePurchase at ATM (late presentment)1.70%1.70%
Approved Charity WorkerMerchant Rebate0%0%
Incentive-0.30%-0.30%
Debit Mastercard BusinessDebit Mastercard Corporate PrepaidContactless TerminalContactlessContactless High-ValueChip & PINPurchase at ATM0.70%0.70%
Enhanced ElectronicBasePurchase at ATM (late presentment)1.10%1.10%
MasterPass0.80%0.80%
Approved Charity WaiverMerchant Rebate0%0%
Business Premium DebitContactless TerminalContactlessContactless High ValueChip & PINPurchase at ATM0.95%0.95%
Enhanced ElectronicBasePurchase at ATM (late presentment)1.35%1.35%
MasterPass1.05%1.05%
Approved Charity WaiverMerchant Rebate0%0%
Mastercard Commercial Payments AccountBaseMasterPass1.90%1.9% for £3,000 or less1% for more than £3000

How to Avoid or Reduce Interchange Fees

Businesses cannot completely avoid paying interchange fees when accepting card payments, as they’re a standard part of the process and set by the cardholder’s bank. 

However, they can take steps to minimise and manage interchange fees to reduce the impact of these fees on their profit margins.

Some ways to reduce your interchange fees include:

  • Negotiate with Payment Processors: Interchange fees aren’t fixed, so you can talk to payment processors to see if they can offer lower rates based on your business’s needs, like transaction volume or industry type.
  • Check Your MCC: Ensure your business is classified under the most favourable MCC category, as some may have lower interchange rates than others.
  • Encourage Lower-Cost Payment Methods: You can offer discounts for cash payments to reduce card usage or promote debit, pre-paid or stored-value card payments.
  • Minimise Card-Not-Present Transactions: Online and phone transactions usually have higher interchange fees.
  • Implement Address Verification Service (AVS): Using AVS for card-not-present transactions can help verify the cardholder’s billing address, reducing the risk of fraud and potentially lowering interchange fees.
  • Use Volume Discounts: If your business processes a high volume of transactions, you may qualify for volume discounts or preferential pricing arrangements with payment processors.
  • Negotiate Chargeback Rates: Minimising chargebacks can help reduce interchange fees associated with disputed transactions.
  • Prevent Fraud: Implement security measures to prevent fraud, like using chip-and-PIN technology and regularly monitoring transactions. Fewer fraud incidents mean lower interchange fees.
  • Optimise Transaction Processing: Streamline transaction processing by batching transactions efficiently and avoiding unnecessary fees for manual entry or data errors.
  • Explore Alternative Payment Methods: Consider integrating alternative payment methods, such as digital wallets or bank transfers, which may have lower interchange fees than traditional card payments.

Frequently Asked Questions

Why are interchange fees so high?

The complexity of the payment ecosystem, the need for secure transactions and the processing of large transaction volumes all contribute to the overall cost. Additionally, interchange fees are influenced by factors such as risk management, regulatory compliance, and the competitive landscape among payment providers. 

What is the difference between merchant fees and interchange fees?

Merchant fees are what businesses pay to process card payments and cover costs like transaction processing and network fees. Interchange fees are a specific part of merchant fees. They’re what banks pay each other when processing card transactions. 

Why do interchange fees vary between different types of transactions?

Interchange fees vary for several reasons, including the level of risk associated with the transaction, the type of card used (debit or credit), the merchant category, and the transaction method (in-person, online, etc.).  Additionally, credit card transactions may have higher interchange fees than debit card transactions, reflecting differences in the level of service and benefits provided to cardholders. 

How often a year do interchange costs increase, and when do they increase, if at all?

Interchange costs can increase periodically, but the frequency and timing of these increases vary. Card networks like Visa and Mastercard typically review and adjust interchange rates annually or semi-annually. However, changes may occur more or less frequently depending on market conditions and regulatory factors. 

Are any specific industries or sectors more affected by interchange fees?

Yes. Retail businesses with low-profit margins, such as grocery stores, and industries with high transaction volumes, like hospitality, are most affected by interchange fees. Online businesses also often face higher interchange fees for card-not-present transactions, impacting profit margins.

How do changes in interchange fees affect small businesses versus larger corporations?

For small businesses, even minor changes in interchange fees can significantly impact operating costs and profit margins, potentially leading to higher prices for goods and services or reduced profitability. Larger corporations, with higher transaction volumes and negotiating power, may have more leverage to negotiate lower interchange rates with payment processors. 

What impact do interchange fees have on online transactions versus in-person transactions?

Online transactions often incur higher interchange fees due to the increased risk of fraud and chargebacks associated with card-not-present transactions. In contrast, in-person transactions generally have lower interchange fees because they are considered lower risk, making them more cost-effective for businesses.