Credit card companies charge merchants a fee every time you swipe, tap, or insert your card

When you pay with a credit card, the merchant pays a percentage of that transaction to the card network and the bank that issued your card. This fee is called the interchange fee, and it is the reason some stores ask you to pay cash or set a minimum purchase amount for card payments. The fee typically ranges from 1.5% to 3.5% of the transaction amount, though it varies based on the type of card, the merchant's industry, and the card network involved.

The interchange fee is split between two parties: the card issuer (the bank that gave you the card) and the card network (Visa, Mastercard, American Express, or Discover). The issuer takes the larger share—usually 1% to 2%—because they bore the risk of approving you for credit. The network takes a smaller cut for running the payment system. On top of this, the merchant's own bank (called the acquiring bank) charges its own processing fee, which is separate from interchange.

Key Takeaways

  • Merchants pay interchange fees of 1.5% to 3.5% per transaction, split between your card issuer and the card network.
  • Rewards cards and premium cards cost merchants more than basic cards because the issuer takes a higher cut to fund your rewards.
  • Debit cards and prepaid cards have lower interchange fees than credit cards, which is why some merchants prefer them.
  • Small businesses and restaurants often absorb these costs rather than passing them to customers, which is why card processing is a major expense for them.
  • Interchange rates are set by the card networks and the issuing banks, not by individual merchants or the acquiring bank.

Why the fee exists and who sets it

The interchange fee compensates your card issuer for the risk of lending you money and for the cost of running the credit system. When you use a credit card, the issuer is essentially giving the merchant an instant loan—they pay the merchant immediately, but you don't pay the issuer until your statement is due. If you don't pay, the issuer absorbs the loss. Interchange covers that risk, plus the cost of fraud detection, customer service, and the technology that approves or declines your transaction in seconds.

The card networks—Visa, Mastercard, American Express, and Discover—set the interchange rates themselves, in consultation with the banks that issue their cards. These rates are not negotiated between the merchant and the network; they are published and apply to all merchants in a given category. A grocery store pays one rate, a gas station pays another, and an online retailer pays a third. The rates change several times a year and are published on each network's website, though most merchants never look at them.

How rewards cards and premium cards cost merchants more

A rewards card costs a merchant significantly more than a basic card. When you use a card that earns 2% cash back or 3 points per dollar, the issuer is funding that reward with a higher interchange fee. The merchant pays 2% to 3% or more on a rewards card, compared to 1.5% to 2% on a basic card. Premium cards with annual fees—like business cards or travel cards—carry even higher interchange rates because the issuer is funding both the rewards and the cardholder benefits.

This is why some merchants, particularly small businesses, discourage you from using premium rewards cards and prefer cash or debit cards instead. They are not being difficult; they are trying to keep their processing costs down. A restaurant that processes $10,000 in credit card sales per day could save $500 to $1,000 per month by shifting customers to lower-cost payment methods.

The difference between credit cards, debit cards, and prepaid cards

Debit cards and prepaid cards have lower interchange fees than credit cards because they carry less risk for the issuer. With a debit card, the money comes directly from your bank account—there is no lending involved, and the issuer knows the funds are there. Debit interchange typically ranges from 0.5% to 1.5%, roughly half what a credit card costs. Prepaid cards are similar; the issuer has already received your money, so the risk is minimal.

American Express operates differently from Visa and Mastercard. Amex is both the network and the issuer, so there is no separate interchange fee. Instead, merchants pay Amex a single processing fee that is typically higher than Visa or Mastercard—often 2.5% to 3.5%—because Amex cardholders tend to spend more and Amex offers more generous rewards. Some merchants refuse Amex for this reason, or they charge Amex customers a surcharge (where it is legal to do so).

What merchants actually pay: the full picture

Interchange is only part of what a merchant pays. On top of the interchange fee, the merchant's acquiring bank charges its own fee, usually 0.3% to 0.5% of the transaction, plus a flat fee per transaction (often $0.10 to $0.30). Some merchants also pay a monthly gateway fee if they process cards online, and they may pay for fraud protection or chargeback handling. All told, a merchant might pay 2% to 4% of each credit card transaction when you add up interchange, acquiring bank fees, and processing costs.

For a small business, this adds up quickly. A coffee shop that processes $5,000 in card sales per day could spend $50,000 to $100,000 per year on payment processing. This is why many small merchants set minimum purchase amounts for cards, offer discounts for cash, or use Square, Toast, or similar services that bundle processing into a single transparent fee.

How interchange rates vary by merchant category

Card networks assign merchants to categories based on their industry, and each category has its own interchange rates. Supermarkets and gas stations typically pay lower rates because they are considered lower-risk and process high volumes. Restaurants and bars pay higher rates because they have higher chargeback rates (customers dispute charges more often). Online retailers pay rates between the two. Nonprofits and government agencies sometimes negotiate lower rates.

Within a category, the rate also depends on how the transaction is processed. A card-present transaction (you swipe or insert the card in person) has a lower rate than a card-not-present transaction (online or phone order), because card-not-present transactions have higher fraud risk. This is why online retailers pay more than brick-and-mortar stores.

Why merchants cannot negotiate interchange rates

A merchant cannot negotiate with Visa or Mastercard to lower their interchange rate. The networks set these rates and apply them uniformly across all merchants in a category. A small bakery pays the same interchange rate as a large chain bakery. This is by design—the networks want to keep the system simple and prevent large merchants from bullying smaller ones into unfair deals.

What merchants can do is negotiate with their acquiring bank on the fees that bank charges on top of interchange. A large merchant with high volume might negotiate a lower acquiring bank fee or a lower per-transaction fee. A small merchant has little leverage and usually pays the standard rate. This is one reason why large retailers can absorb card processing costs more easily than small businesses.

Frequently Asked Questions

Can a merchant charge me extra for using a credit card?

In most states, merchants can charge a surcharge for credit card use, but not for debit cards. The surcharge cannot exceed the merchant's actual processing cost, and the merchant must disclose it before you complete the purchase. Some states and cities ban surcharges entirely. A few merchants use "cash discounts" instead, which is legal everywhere—they offer a lower price for cash and charge full price for cards.

Why do some stores refuse certain credit cards?

Stores refuse cards when the interchange fee is too high relative to their profit margin. American Express is the most commonly refused card because Amex charges merchants the highest rates. Some stores also refuse premium rewards cards for the same reason. A store that refuses a card is making a business decision about which payment methods they can afford to accept.

Do interchange fees ever go down?

Interchange rates change several times per year, and they can go up or down depending on the card network's decisions and economic conditions. During the COVID-19 pandemic, some networks temporarily lowered rates for certain merchant categories. Over the long term, rates have generally trended upward as card networks have added more features and fraud protection.

Is interchange the same as the fee I see on my credit card statement?

No. Interchange is what the merchant pays. You do not see interchange on your statement. The fees you see on your statement are annual fees (if your card has one) or interest charges if you carry a balance. You never pay interchange directly—the merchant does, and they may or may not pass that cost to you through higher prices.

What is a chargeback, and how does it affect interchange?

A chargeback happens when you dispute a charge and your card issuer reverses it, taking the money back from the merchant. Merchants with high chargeback rates pay higher interchange fees because they are considered riskier. This is one reason why restaurants and online retailers pay more than supermarkets—they have higher chargeback rates.