Guide to Interchange, Association & Processor Fees

Overview

Understanding payment processing fees can help merchants interpret their statements and make informed decisions when selecting a payment processor. This guide explains interchange fees, network assessments, processor fees, and the most common pricing models used in card payment processing.

What Are Interchange Fees?

Interchange is a fee paid by the merchant’s bank (the acquiring bank) to the cardholder’s bank (the issuing bank) every time a credit or debit card transaction is processed.

Interchange is a fundamental component of the electronic payment's ecosystem. It helps cover the costs associated with:

Fraud prevention and security
Credit risk
Payment infrastructure
Cardholder benefits such as rewards programs

Interchange fees are set by the card networks and apply to every card transaction.

Supported card networks include:

Visa®
Mastercard®
Discover®
American Express®

These networks periodically review and adjust interchange structures based on industry changes, risk factors, and market conditions.

Why Interchange Fees Exist

Interchange fees serve several important functions within the payment's ecosystem.

They help:

Compensate issuing banks for transaction risk, fraud protection, and billing services
Support secure payment networks and transaction infrastructure
Encourage card issuers to offer payment cards and maintain reliable systems
Enable fast and secure electronic payments between consumers and merchants

Without interchange, the card payment network would not function efficiently.

Card Brand	Typical Review Months	Notes
Visa	April & October	Pricing and interchange updates may vary based on card type, industry, transaction method, and regulatory changes.
Mastercard	April & October	Often aligned with Visa's pricing review cycles, though individual program updates may differ.
Discover	Varies	Updates are typically issued annually or semi-annually depending on network policy changes.
American Express	As Needed	Uses a different pricing structure commonly referred to as a discount rate model rather than traditional interchange categories.

Note: Interchange and network fee changes are typically communicated to payment processors, acquiring banks, and partners in advance before taking effect.

What Happens During a Card Transaction

A typical payment transaction follows these steps:

A customer presents their credit or debit card.
The merchant’s payment system sends the transaction to the payment processor.
The processor routes the transaction through the card network.
The issuing bank approves or declines the transaction.
The transaction is approved and funds are transferred to the merchant.

During this process:

The issuing bank receives the interchange fee
The card network collects an assessment fee
The processor charges a processing fee

Factor	Example
Card Type	Credit, debit, rewards cards
Transaction Method	Swiped, chip, contactless, keyed
Merchant Category	Grocery store, eCommerce, travel
Card Brand	Visa, Mastercard, Discover, American Express

General Guidelines

Card-not-present (CNP) transactions — such as online purchases usually have higher interchange due to increased fraud risk.
Rewards cards typically carry higher interchange rates because they help fund cardholder benefits.

Interchange vs. Other Payment Processing Fees

Interchange is only one part of the total cost of processing payments.

Fee Type	Paid To	Description
Interchange	Issuing Bank	Set by card networks and based on transaction risk, card type, and acceptance method (card-present vs. card-not-present).
Assessment	Card Network	Network usage fee charged by card brands such as Visa, Mastercard, Discover, and American Express.
Processor Fees	Payment Processor	Fees charged by the processor for managing transactions, merchant accounts, technology, support, and reporting services.

Note: These three components together make up the total payment processing cost for a merchant. The final rate a merchant pays depends on card type, transaction method, industry, and processor pricing structure.

Common Payment Processing Pricing Models

Payment processors package interchange and other fees into several different pricing models.

Understanding these models helps merchants interpret their statements and compare providers.

Interchange Plus Pricing (Cost Plus)

Interchange Plus is considered the most transparent pricing model.

Merchants pay:

Interchange Fee + Card Brand Fees + Processor Markup

The interchange portion passes directly through to the merchant, while the processor adds a fixed markup.

Example

If the interchange rate is:
1.80% + $0.10

and the processor markup is:
0.30% + $0.05

The total cost to the merchant would be:
2.10% + $0.15

Advantages

Highly transparent pricing
Easier to audit processing costs
Often lower cost for higher-volume merchants

Tiered Pricing

Tiered pricing groups transactions into categories based on risk and card type.

Common tiers include:

Qualified
Mid-Qualified
Non-Qualified

In tiered pricing for card payment processing, transactions are grouped into three buckets (tiers) based on how much risk and cost the processor has for that transaction. The better the transaction quality, the lower the cost.

Here’s an easy way to explain them:

Understanding Tiered Pricing in Card Payment Processing

In tiered pricing, card transactions are grouped into three pricing buckets (tiers) based on the cost and risk associated with the transaction. Higher-quality transactions cost less to process, while transactions with more risk or additional card benefits cost more.

1. Qualified (Best Rate)

These are the cleanest and lowest-risk transactions, so they receive the lowest processing rate.

Examples:

Customer uses a standard consumer credit card
Card is swiped, tapped, or dipped in person
Transaction is processed and settled correctly and quickly

"Everything about the payment was done the standard way, so it qualifies for the lowest rate."

2. Mid-Qualified (Middle Rate)

These transactions carry slightly more cost or risk, placing them in the middle pricing tier.

Examples:

Card is manually entered
Payment is keyed online or taken over the phone
The card may be a rewards or business card

"The payment is still valid, but something about it makes it slightly more expensive to process."

3. Non-Qualified (Highest Rate)

These transactions carry the highest cost or risk, so they receive the highest processing rate.

Examples:

Corporate or purchasing cards
Premium rewards cards
Missing transaction data
Transactions not settled within the required timeframe
Certain higher-risk online transactions

"The card type or transaction details make it more expensive for the processor, so it falls into the highest pricing tier."

Each tier has a different processing rate.

Tier	Rate Level	Typical Criteria	Example Transactions	Merchant Impact
Qualified	$ Lowest	Card-present transactions using standard consumer cards with full data captured and timely settlement.	Swiped debit card, EMV chip transaction	Lowest processing cost
Mid-Qualified	$$ Moderate	Rewards cards, business cards, or manually keyed transactions with verification such as AVS.	Keyed rewards card with AVS verification	Higher processing cost
Non-Qualified	$$$ Highest	International cards, missing verification data, or transactions settled late.	Keyed card without AVS verification	Highest processing cost

Example Tier Rates

Qualified: 1.70%
Mid-Qualified: 2.50%
Non-Qualified: 3.20%

Note: The payment processor determines which pricing tier a transaction falls into. Card networks (Visa, Mastercard, Discover, and American Express) set interchange rates, but processors apply tiered pricing structures when pricing merchants under a tiered model.

Flat Rate Pricing

Flat rate pricing charges the same rate for every transaction, regardless of card type or transaction method.

Example

Example providers include platforms such as Stripe and Square.

Typical example pricing:
2.9% + $0.30 per transaction

Advantages

Simple to understand
Predictable processing costs
Easy for new businesses to manage

Considerations

Merchants with low-risk transactions may pay more than necessary
Pricing is usually non-negotiable

Pricing Model Comparison

Criteria	Interchange Plus	Tiered Pricing	Flat Rate
Transparency	Very transparent. Merchants see the true interchange cost plus a small processor markup.	Limited transparency. Transactions are grouped into tiers without showing the true interchange.	Moderate transparency. One fixed rate, but underlying costs are hidden.
Cost Efficiency	Usually the lowest long-term cost, especially as transaction volume grows.	Cost varies depending on how transactions qualify across tiers.	Often higher overall cost because the flat rate must cover all transaction types.
Complexity	More detailed statements but provides full visibility into fees.	Moderate complexity with tier categories.	Very simple — one predictable rate.
Best For	Established merchants, higher-volume businesses, or merchants seeking the most transparent pricing.	Small to mid-size merchants who prefer simplified pricing categories.	Startups, seasonal merchants, or very low-volume businesses.

Note: This information is provided for educational purposes only and does not constitute pricing advice. A sales representative should determine and set the merchant up on the most appropriate pricing model based on the merchant's business type, transaction volume, and processing needs.

⚠️ Important: For a complete list of Interchange updates effective April 2026, including all category changes and rate adjustments, review the full spreadsheet: Interchange | April 2026 (Full List)