Interchange fees are one of those behind-the-scenes costs that impact almost every card payment made today. Whether you’re a small business owner, an e-Commerce seller, or simply someone curious about how payment systems work, understanding them can help you manage expenses and make smarter financial decisions.
In this blog, we’ll break down what Interchange Fees are, why they exist, and most importantly, practical ways to lower them.
What are Interchange Fees?
These are charges paid between banks during a card transaction. When a customer uses a debit or credit card to make a purchase, the merchant’s bank (also called the acquiring bank) pays a fee to the customer’s bank (the issuing bank).
In simple terms:
- Customer pays with a card
- Merchant receives payment
- Merchant’s bank pays interchange to the customer’s bank
- Merchant ultimately covers the cost
These fees are usually included in the total processing fees a business pays for accepting card payments.
Why Do Interchange Fees Exist?
It plays a key role in keeping the Payment Gateway ecosystem running smoothly. They help cover:
- Fraud prevention and security measures
- Costs of issuing cards to consumers
- Reward programs like cashback and points
- Risk of non-payment or chargebacks
- Transaction handling and authorization
Without it, banks would have fewer incentives to provide credit card services or invest in payment security.
How Are Interchange Fees Calculated?
They are not fixed. They vary depending on several factors, such as:
1. Type of Card Used
Premium rewards cards often have higher interchange fees compared to basic debit cards.
2. Transaction Method
- In-person chip transactions usually cost less
- Online or keyed-in transactions cost more due to higher fraud risk
3. Business Industry
Some industries are considered higher risk and may have higher rates.
4. Transaction Size
Certain fees include both a percentage and a flat amount, such as:
- 1.8% + $0.10 per transaction
5. Card Network Rules
Visa, Mastercard, and other networks publish interchange rate tables that banks follow.
Why Interchange Fees Matter for Businesses
For merchants, interchange fees can significantly impact profit margins. Even small differences in rates add up over time.
Example:
If your business processes $100,000 per month in card sales, and interchange fees average 2%, you could be paying:
$2,000 per month
or
$24,000 per year
That’s money that could otherwise be invested in growth, staffing, or customer experience.
Ways to Lower Interchange Fees
The good news is that businesses can take steps to reduce costs. Here are some effective strategies:
1. Encourage Debit Card Payments
Debit cards generally have lower fees than credit cards, especially regulated debit cards.
You can encourage debit use by:
- Offering small discounts for debit payments
- Setting up signage at checkout
- Providing low-cost payment options
Even shifting a portion of transactions from credit to debit can reduce overall fees.
2. Use EMV Chip and Contactless Payments
Card-present transactions are typically cheaper than card-not-present ones because they are less risky.
Make sure your business accepts:
- Chip cards (EMV)
- Tap-to-pay contactless cards
- Mobile wallets like Apple Pay and Google Pay
These payment methods can lower fees and reduce fraud risk.
3. Optimize Your Payment Processing Setup
Not all processors price interchangeably the same way. Some offer:
- Flat-rate pricing
- Interchange-plus pricing
- Tiered pricing
Interchange-plus is often the most transparent and cost-effective for growing businesses.
Review your statements regularly to ensure you’re not overpaying.
4. Reduce Manual Keyed-In Transactions
Keyed-in payments (typing card numbers manually) are treated as higher risk and often come with higher rates.
To reduce this:
- Use card readers instead of manual entry
- Implement secure online checkout systems
- Encourage customers to use saved payment methods
5. Implement Address Verification and Security Tools
For online businesses, using fraud prevention tools can qualify you for lower interchange categories.
Helpful tools include:
- AVS (Address Verification System)
- CVV verification
- 3D Secure authentication
These reduce chargebacks and improve transaction approval rates.
6. Batch Transactions Correctly and On Time
Delaying settlement of transactions can increase fees. Payment networks may charge more if transactions are processed late.
Best practice:
- Close out your batch daily
- Avoid holding transactions for multiple days
Timely settlement helps keep rates lower.
7. Consider Surcharging or Cash Discount Programs (Where Legal)
Some businesses offset costs by:
- Adding a small surcharge for credit card use
- Offering discounts for cash payments
However, rules vary by country and card network, so compliance is essential before implementing these programs.
8. Work With a Payment Consultant or Specialist
If your business handles large volumes of card transactions, professional support can help uncover savings opportunities.
A specialist can:
- Audit processing statements
- Negotiate better rates
- Ensure proper transaction coding
- Recommend cost-saving payment strategies
Why Choose SelectivePay
SelectivePay is the ideal choice for businesses looking to reduce interchange fees and streamline their payment operations with ease. With advanced payment processing solutions, transparent pricing models, and secure transaction tools, it helps merchants optimize costs while ensuring smooth and reliable card acceptance. Whether you run a retail store or an e-Commerce business, it offers advanced support, fraud-prevention features, and expert guidance to improve approval rates and lower unnecessary processing expenses.
Final Thoughts
Interchange fees are a standard part of the card payment system, but they don’t have to be a burden. By understanding how they work and applying smart strategies, like encouraging e-Commerce payments, improving transaction security, and optimizing your processing setup, you can significantly reduce costs over time. Lower interchange fees mean higher margins, better cash flow, and more resources to grow your business.
