Someone is paying processing fees.
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Ever since their debut in the mid-20th century, credit cards have helped speed up the checkout process. You tap, swipe, or click, andâunless your card is declinedâthe purchase is complete. Most people stop thinking about the transaction at that point. The cardâs issuing bank pays the merchant, you (eventually) pay your credit card bill, and the process feels simple and seamless.
Yet that simple moment sets in motion a complex system of query, authorization, processing, fund transfer, and recording. Powering that system is the interchange fee (or swipe fee)âtypically a percentage of the purchase amount and perhaps an additional flat feeâthatâs paid to the cardholderâs bank for authorizing and routing the transaction.
Key Points
- Interchange fees are the transaction fees merchants pay when customers use credit cards.
- Credit card networks set the fee; the amount depends on the card type, merchant category, and security level of the transaction.
- A 2024â2025 settlement proposal could temporarily lower some swipe fees, but also broaden merchantsâ options for managing card acceptance costs.
Interchange fees play a major role in those behind-the-scenes costs and influence what both merchants and consumers ultimately pay. These fees also help explain why some stores add credit card surcharges, offer cash discounts, or decide to accept only certain credit cards.
Interchange fees may seem small, but they add up over time. A tiny 2% fee has fueled multi-billion-dollar fights among banks, retailers, credit card networks, and consumer advocates. Those battles recently resurfaced in a major VisaâMastercard settlement proposal, which could reshape swipe fees in the years ahead.
Hereâs what you need to know about how interchange fees work and why they matter.
What are interchange fees?
Interchange (âswipeâ) fees are processing charges merchants pay every time a customer uses a credit card. The credit card network creates the fee structure, and the customerâs bank collects the fees during settlement (with the credit card networkâVisa, Mastercard, etc.âtaking a small slice). Behind the scenes, the merchantâs payment processor handles the technical routing.
Suppose you buy a $90 pair of shoes with a credit card. The cardâs issuing bank approves the purchase and releases the funds, but the merchant receives slightly less than the $90 you spent. Thatâs because the bank takes the interchange fee out before the payment arrives. Depending on the provider, the merchant may also pay other processing costs beyond the interchange fee.
Interchange fees vary based on card network rules, merchant category, risk, and other factors. Yet in general, interchange rates have two components:
- A percentage of the purchase amount, typically between 1.5% and 3%
- A small fixed transaction fee, often between 5 and 20 cents
Interchange fee = (percentage Ă transaction amount) + flat fee
For example, if that $90 purchase came with a 2% rate and a 10-cent fixed fee, it would cost the merchant ($90 x 0.02) + $0.10 = $1.90. That may not sound like much, but for a merchant or service provider that sells thousands of dollarsâ worth each day, these tiny charges add up quickly.
According to the 2025 Nilson Report, in 2024, merchants paid $187.2 billion in swipe fees on over $11.9 trillion of payments for goods and services. That number should give you a sense of why merchants fight so hard over these fees and why many shoppers already pay higher prices to cover rising costs.
Swiping sets off a series of steps.
© Marat MusabirovâiStock/Getty Images, © dark322/stock.adobe.com, United States Department of the Treasury Bureau of Engraving and Printing; Photo illustration EncyclopĂŠdia Britannica, Inc.
Interchange fees and payment systems
Interchange fees are part of a larger payment authorization and settlement system. Every card transaction passes through several parties before the merchant gets paid.
- Query and authorization. When you tap or swipe your card, an authorization request goes to the merchantâs bank. The request then routes through the card network to your cardâs issuing bank.
- Thumbs-up or thumbs-down. The issuing bank checks your available credit, screens for fraud, and approves or declines the purchase. That decision is sent back through the network to the merchant.
- Processing and fund transfer. If itâs approved, the merchant sends the transaction to its bank for settlement. The issuing bank transfers funds to the merchantâs bank, and this is when the issuing bank collects the interchange fee.
- Credit card bill. The transaction is posted to your credit card account. If you carry the balance past the due date, interest applies on top of the original amount.
For more information, visit Britannica Moneyâs guide to digital payment systems.
Why interchange fees vary
Understanding the cost of interchange rates can be complicated because swipe fees donât follow a single formula for every purchase. Instead, several factors influence the final cost merchants pay for accepting a credit or debit card payment:
- Card type. Rewards credit cards typically feature higher interchange fees than basic cards. If, for example, you earn 3% cash back on certain purchases, a merchant funds part of that reward through a higher swipe fee.
- Merchant category. Every business falls into a merchant category code (MCC). Restaurants, gas stations, grocery stores, travel companies, and online retailers all pay different rates based on the risk profile assigned to specific types of merchants.
- Security level. In-person chip transactions often cost less than online payments because fraud risk drops when the customer and card are present.
- Transaction method. Another way credit card networks aim to control risk is by pricing interchange fees according to the type of credit card transaction a customer makes. Contactless and mobile wallet payments are typically priced similarly to chip transactions, but keyed and card-not-present transactions carry higher fees because fraud risk is higher.
Interchange fees donât stay static. Historically, card networks adjust interchange rates twice a year, in April and October.
Interchange fees vs. merchant discount rate
Many people (even business owners) confuse interchange fees with the full merchant discount rate. Interchange is often the largest component of the merchant discount rate, but itâs not the only expense of accepting credit and debit card payments.
Hereâs a simple breakdown to help explain the difference, and why some merchants pay more than others, even when theyâre selling similar products.
| Fee type | Who sets it | Who receives it | What it covers |
|---|
| Interchange fee | Card networks (Visa, Mastercard, Discover, Amex) | Issuing bank | Fraud risk, transaction handling, rewards programs |
| Network assessment fee | Card networks | Card networks | Network operations |
| Processor/acquirer markup | Payment processors | Processor/acquirer | Service costs, gateway fees, support |
| Merchant discount rate | All of the above | Split among the above | Total cost to accept cards |
| Source: Electronic Payments Coalition |
The 2024â2025 swipe-fee settlement (whatâs in itâand whatâs missing)
Visa and Mastercard have proposed a settlement to end nearly two decades of litigation over interchange fees. The agreement would trim U.S. credit card swipe fees by about 0.10 percentage points for five years and cap interchange on standard consumer cards at 1.25%. It would also give merchants more room to steer customers toward lower-cost payment options or decline certain high-fee cardsâflexibility that wasnât available under earlier network rules.
But many merchant groups argue the relief is modest, temporary, and excludes premium rewards cards, where interchange is often highest. They also say the proposal leaves the networksâ long-term authority over setting fees largely intact. The settlement still requires court approval.
Why interchange fees matter to consumers
Consumers feel the impact of swipe fees even though they donât pay them directly at checkout. As a shopper, rising interchange fees could affect you in several ways:
- Higher retail prices. Merchants often raise prices to help offset higher payment costs.
- More surcharges. Some businesses now add 2% or 3% credit card surcharges to individual credit card transactions.
- Fewer payment options. Businesses may refuse certain credit card networks or certain premium rewards cards because it costs more to accept them.
- Shifting rewards. Credit card rewards can be a great benefit for people with good credit, and higher interchange fees help fund those programs. But a proposed settlement between banks, networks, and merchants (see sidebar) could reduce rewardsâ value in the future.
You typically wonât see âinterchange feeâ listed on a receipt. However, those costs still shape how you pay, what you earn in rewards, and how much you spend.
Why merchants care about interchange fees
Interchange fees cut directly into a companyâs bottom line. Many retailers, especially small businesses, operate on thin margins. Even small increases in swipe fees can create real financial pressure.
When processing costs rise, many businesses respond by adding surcharges, steering customers toward debit or cash, or dropping certain credit card networks altogether. These decisions aim to protect company profits, but as a consumer, they can change how you use your favorite rewards cards and where you choose to shop.
Interchange fees affect nearly every card-based transaction. These small charges are key factors behind the price you pay for goods and services at checkout, the rewards you earn, and even which cards your favorite stores accept. Rising swipe fees influence retail prices and drive conflict among merchants, banks, and credit card networks.
When you understand how interchange fees work, it gives you a clearer picture of the costs behind everyday purchases. That knowledge can help you make sense of credit card surcharges (and how to avoid them), shifting rewards, and store policies about which cards you can use when shopping online or in person.
This article was most recently revised and updated by Michelle Lambright BlackThis article was most recently revised and updated by Doug Ashburn
