Every card sale is split three ways before the money reaches you. The largest share goes to the bank that issued the customer card, as interchange. A small share goes to Visa or Mastercard as network fees. The rest is your processor margin. Only the third part is negotiable, which is why two merchants on the same headline rate can pay very different amounts.
What interchange actually is
Interchange is the fee the issuing bank keeps for taking the risk of extending credit and for funding the rewards on the card. Visa and Mastercard publish the tables. Nobody, not your processor and not your bank, can negotiate them. They change twice a year, in April and October.
What varies is which row of the table your transaction lands on. There are hundreds of rows. A debit card tapped in a shop sits near the bottom. A corporate rewards card typed into a website with no address check sits near the top. The gap between those two rows can be more than two percent of the sale.
The three components of your rate
| Component | Who keeps it | Negotiable |
|---|---|---|
| Interchange | Customer issuing bank | No |
| Network assessments | Visa, Mastercard, Amex | No |
| Processor margin | Processor and ISO | Yes |
When somebody offers you a better rate, they are offering a smaller third line. That is worth having, but it is usually the smallest of the three.
Flat rate, tiered, and interchange plus
Flat rate
One percentage for everything, the model used by aggregators. Simple, predictable, and priced so the provider still profits on the expensive cards. If your mix is mostly cheap debit, you are subsidising everyone else.
Tiered
Transactions are sorted into qualified, mid qualified and non qualified buckets. The bucket definitions belong to the processor, not to the networks, and can be redrawn. This is the model most likely to hide a rate increase in plain sight. If your statement uses these words, ask for a change.
Interchange plus
You pay the true interchange, plus the true network fee, plus a fixed markup that is stated in writing. It is the only model where you can see the three components separately, and the only one where reducing interchange puts money back in your pocket rather than the processor pocket.
Working out your effective rate
Take one month statement. Divide every fee, including monthly fees, statement fees, PCI fees, batch fees and gateway fees, by the total volume processed. That number is your effective rate. It is the only figure worth comparing between providers.
Two examples with the same headline rate of 2.6 percent:
- Store A processes 40,000 in a month, pays 1,040 in percentage fees and 180 in fixed monthly charges. Effective rate 3.05 percent.
- Store B processes 40,000, pays 1,040 in percentage fees and 25 in fixed charges. Effective rate 2.66 percent.
Same quote, 155 a month apart. Over a year that is a part time salary.
What actually moves your interchange
Card mix is mostly out of your control. These are not:
- Address and CVV data. Sending AVS and CVV with a card not present transaction qualifies it for a lower row. Leaving them out is a straight surcharge.
- Settling within the window. Authorisations settled late drop to a worse category. Batch daily.
- Level II and Level III data. On commercial and purchasing cards, sending tax amount, customer code and line item detail can move a transaction down by a full percentage point. This matters enormously for B2B sellers and not at all for consumer sellers. We cover the mechanics on the Level II and Level III page.
- Correct MCC. A business categorised wrongly pays the wrong table.
- Payment method mix. Moving large invoices to ACH removes the percentage entirely.
The fees people forget to count
Monthly minimum, statement fee, PCI compliance fee, PCI non compliance fee, gateway monthly, per transaction gateway fee, batch fee, chargeback fee, retrieval fee, annual fee, early termination fee. None of them appear in a quoted rate. All of them appear in your effective rate.
The PCI non compliance fee is worth a special mention. It is charged when your self assessment questionnaire is out of date, it is often 20 to 40 a month, and it is entirely avoidable by filling in a form once a year.
Reading the statement
Ask for an interchange plus statement with the interchange detail included. You want to see, per category, the number of transactions, the volume, the interchange rate applied and the total. Then look for two things: categories you should not be in, and a large downgrade bucket. A big non qualified pile usually means missing AVS data, late settlement, or commercial cards passed without Level II detail.
What good looks like
For an established consumer store in the United States, an effective rate between 2.4 and 2.9 percent is normal. Below that usually means a heavy debit mix. Above 3.2 percent means either an expensive card mix, a tiered plan, or missing data on card not present sales. B2B sellers passing full Level III data can sit under 2.2 percent.
None of this requires switching processors. It requires reading one statement properly, then fixing the two or three things that are moving transactions into the wrong row.