At Beacon Payments, we believe in full transparency. We want every business owner to understand where their money is going—and how they can make smart decisions when it comes to payment processing. In this post, we’ll break down what interchange is, how it works, and how it affects your bottom line.

What Is Interchange?

Interchange is the base fee that credit card companies (like Visa, Mastercard, Discover, and American Express) charge every time a credit or debit card is used for a transaction. This fee is paid by your payment processor to the card-issuing bank and is then passed along to you as part of your overall processing cost.

These fees are set by the card brands and are non-negotiable—every merchant pays them, no matter which processor you use.

How Does Interchange Work?

Here’s a simplified breakdown of what happens during a card transaction:

1. A customer pays for a product or service with a credit or debit card.
2. The transaction is routed through your POS system or payment gateway.
3. The card-issuing bank (the customer’s bank) collects an interchange fee from your merchant bank or processor.
4. The processor adds its own markup or margin (depending on your pricing model) and bills you for the transaction.

So, your total cost per transaction is typically:

Interchange Fee + Card Brand Fee + Processor Markup = Total Cost

What Factors Affect Interchange Fees?

Interchange fees aren’t one-size-fits-all—they vary based on several factors:

💳 1. Card Type

• Debit cards have lower interchange fees than credit cards.
• Rewards or business credit cards usually carry higher fees.

🏪 2. Transaction Method

• Swiped, dipped, or tapped (card-present) transactions typically cost less than keyed-in or online (card-not-present) transactions due to lower fraud risk.

🛍️ 3. Merchant Category Code (MCC)

Card brands assign each business an MCC. Different industries are charged different interchange rates.

💰 4. Transaction Amount

Some interchange fees are calculated as a percentage plus a flat fee (e.g., 1.51% + $0.10), so larger purchases carry higher total fees.

Why Does Interchange Matter to Your Business?

Understanding interchange is key to choosing the right pricing model and managing your processing costs effectively. There are three common pricing models:

🔹 Interchange-Plus (Cost-Plus)

You pay the actual interchange fee plus a small, transparent markup from your processor. This is the most transparent and often the most cost-effective model for businesses.

🔹 Tiered Pricing

Your processor groups interchange rates into "tiers" (qualified, mid-qualified, non-qualified). It's simpler on the surface but often lacks transparency and can result in higher costs.

🔹 Flat-Rate Pricing

You pay the same rate on every transaction (e.g., 2.75%). This is easy to understand but usually results in overpaying, especially on low-cost debit transactions.

How Beacon Payments Helps

At Beacon Payments, we’re upfront about interchange and committed to helping you find the best pricing structure for your business. We offer:

• 🔍 Free statement analysis so you can see exactly what you’re paying in interchange
• 💳 Interchange-plus pricing for complete transparency
• 🧾 Education and support to help you understand your fees and reduce your costs
• 📊 No-cost POS systems and pricing options like cash discounting to offset interchange entirely

Final Thoughts

Interchange fees are a fundamental part of credit card processing, and while you can’t avoid them, you can control how much you pay above them. Understanding how interchange works puts you in a better position to make informed decisions about your merchant services provider.

Want to know what you’re really paying in interchange?
Contact Beacon Payments today for a free statement review and pricing consultation.