Interchange fee
An interchange fee is the per-transaction fee the acquiring bank (the merchant's bank) pays to the issuing bank (the cardholder's bank) on every card payment. It is a core revenue mechanism for card issuers and a cost of acceptance for merchants.
Interchange is the financial flow that underpins the economics of card payments. When a cardholder pays with a Visa or Mastercard, the merchant's acquirer pays the cardholder's issuer an interchange fee, typically a percentage of the transaction value plus a fixed amount. Card networks set interchange rates by card type, merchant category, and transaction characteristics.
Interchange rates vary considerably by context. Premium credit cards typically carry higher interchange than standard debit cards. Card-not-present transactions (e-commerce) typically carry higher interchange than card-present (in-store) transactions. Certain merchant categories (supermarkets, petrol stations) qualify for reduced interchange under network rules.
For card program issuers, fintechs, platforms, and banks, interchange revenue is a primary income stream. A corporate card program processing $50M monthly at 1.2% blended interchange generates $600,000 monthly in interchange income. For platforms embedding card products, interchange turns payment infrastructure from a cost center into a revenue-generating component of the business.
Understanding interchange economics is essential for any business considering card program issuance. Interchange revenue can offset card program costs and generate net income at scale. For platforms spending significant amounts through their own card programs, the interchange earned as issuer effectively discounts their cost of card acceptance.
- Interchange rates vary by card type, merchant category, region, and transaction type, requiring sophisticated accounting
- Regulatory caps on interchange (EU Interchange Fee Regulation, Durbin Amendment in the US) limit revenue for regulated card types
- Chargebacks generate interchange reversals that must be accounted for
- Card scheme assessments and network fees reduce gross interchange to net interchange
- Interchange optimization requires program design decisions that balance cardholder experience against revenue
A B2B software platform embeds a Nium-powered corporate card into its expense management product. Cards process $8M monthly at 1.4% blended interchange. Monthly interchange income of $112,000 is shared between Nium and the platform, generating a new income stream that converts the card feature from a cost to a profit center within 11 months.
Related Concepts
Nium shares interchange revenue with card program partners on commercial terms negotiated at program level. As a principal card network member, Nium accesses institutional interchange rates and passes a portion to platform clients, enabling the card program to generate income from day one of transaction volume.
Answers you didn't know you needed.
Who pays interchange fees?
The acquiring bank (processing payments for the merchant) pays interchange to the issuing bank (the cardholder's bank) on each card transaction. Merchants effectively bear this cost indirectly through merchant discount rates.
What is a typical interchange rate?
EU interchange fees are capped at 0.2% for consumer debit and 0.3% for consumer credit. US commercial card interchange can be 1.5–3%. Corporate and premium cards typically earn higher interchange.
How does interchange revenue work for card program partners?
Nium collects interchange on each transaction and shares a portion with the program partner under a commercial revenue share agreement.
What is the difference between interchange and merchant discount rate (MDR)?
Interchange is the fee paid from the acquirer to the card issuer. MDR is the total fee the merchant pays to their acquirer, which includes interchange plus the acquirer's margin and network fees. Interchange is a component of MDR.
Are interchange rates the same globally?
No. Interchange rates vary significantly by market and are influenced by local regulation. The EU has capped consumer card interchange. The US has the Durbin Amendment capping debit interchange for large issuers.