Guide to Reducing Interchange Fees

Reducing interchange fees can bring substantial savings.

While interchange fees are often seen as unavoidable pass-through fees that cannot be negotiated or affected, there are many ways to reduce them.

Credit cards are the most used payment method in the United States. And if your business takes credit cards, you're well aware that doing so isn't free.

Credit card transaction and processing fees consist of three different factors: interchange fees, processor fees, and assessment fees. At roughly 85% of the fee total, interchange fees are the largest portion of the total credit card transaction fees. Reducing them can mean a substantial cost reduction.

The challenge: interchange fees are in constant flux, and they're so complex and nuanced that, often, even the credit card processor doesn't know which adjustments to make to optimize them. To do so requires knowing how interchange fees work, why they exist, what factors affect their calculation, and a number of industry benchmarks.

Interchange fees defined.

Interchange fees were first introduced in 1971 as a mechanism to encourage bank participation in early card networks, helping to cover the costs of processing transactions and managing the risks involved. Today, these fees primarily fund fraud prevention programs and cardholder reward perks.

Every time your customer swipes their credit or debit card, the card networks collect interchange reimbursement fees, which are ultimately paid to the bank that issued the card. Whenever a credit card or debit card transaction is processed, funds are transferred from the issuing bank to the acquiring bank (sometimes called the merchant bank). Card associations like Visa and Mastercard facilitate this process, and for that service they collect a fee from the acquiring bank, which is then passed on to the issuing bank. This is what's known as the interchange fee.

In short: today's interchange fees exist to fund cardholder reward programs and offset transaction risk, both of which help drive continued growth in credit card use.

How interchange fees are calculated.

Even though interchange fees are paid to the issuing bank, credit card brands such as Visa, MasterCard, Discover, and American Express set the rate requirements for accepting their cards.

Interchange fees vary by credit card network or association, averaging 1.5% to 2.5% for credit cards and 0.5% or less for debit cards. Premium and rewards cards can push rates higher, while regulated debit transactions are capped at significantly lower levels.

Each credit card brand uses its own rate percentage calculations for types of cards and categories of transactions, resulting in hundreds of different interchange fee programs. Visa alone has over 900 pages of rules governing how these programs work.

Here are just a few of the factors that influence how interchange fees are calculated:

• Business category such as general merchandise, gas station, or restaurant
• Debit card vs. credit card
• Private company or government agency vs. individual consumer
• Ecommerce, telephone, and mail order sales where the card is not present vs. in-person transactions where the card is present
• Tokenized transactions that improve security
• Customers with rewards cards

Constant rate fluctuation.

Semiannually, in April and October, Visa and Mastercard update their rules governing interchange fees. The nature of these updates can be unpredictable, and businesses must stay proactive to avoid or offset unexpected cost increases.

Recent years have seen significant developments. In 2025, Visa launched its Commercial Enhanced Data Program (CEDP), which replaced the previous Level 2/3 data framework. Under the new program, merchants processing corporate or business cards must provide accurate, validated transaction data to qualify for discounted rates — and Visa is now using AI to flag transactions that don't meet the standard. Merchants who haven't updated their payment systems to provide this data may see their effective interchange rates rise.

On the legal and regulatory front, Visa and Mastercard reached a landmark proposed settlement in November 2025 following nearly 20 years of antitrust litigation brought by U.S. merchants. The settlement — pending final court approval — would reduce average interchange fees, cap certain standard consumer credit card rates, and give merchants greater flexibility in which cards they choose to accept. Final approval is expected in late 2026 or early 2027.

These kinds of developments illustrate why staying current on interchange rules isn't optional. It's a meaningful part of managing your processing costs.

Reducing interchange fees.

While interchange fees are unavoidable, it's a common misconception that they can't be reduced. This misconception stems primarily from the fact that processors are rarely able to negotiate lower interchange fees. As interchange is a pass-through fee for them, most processors won't be able to offer a lower rate (unless the processor itself has a hidden markup applied).

To effectively reduce these fees, there are numerous tactics, which can be grouped into two categories: updating your payment technologies, or optimizing the back end of your merchant account. Unfortunately, there is a big difference between the two when it comes to effectiveness.

Updating Payment Technologies: Cost Reduction of 3–5%

These are three of the most effective strategies when attempting to lower fees on your own. Unfortunately, these methods typically only result in a 3–5% reduction.

• Increase security at the moment of payment capture
• Use an integrated payments solution to reduce the risk of data entry errors and fraud
• Use an incentive-based card steering solution

Credit Card Processing Optimization: Cost Reduction of 10–30%

A credit card processing optimization engagement is necessary for truly substantial savings. The process is complicated but essentially entails:

• Obtaining a more detailed version of the merchant statement
• Dissecting every fee on the statement
• Comparing each individual fee against industry benchmarks and against the published rules from Visa, Mastercard, and American Express
• Directing the processor to adjust multiple individual account settings
• Ensuring adjustments are completed in the proper sequence to avoid putting optimization components at risk
• Updating the workflow between the Gateway and the ERP or invoicing system to ensure collection of legitimate transaction data
• Optimizing industry classification settings

Because implementing these optimizations requires numerous micro-adjustments to the back end of the merchant account, doing so requires extensive knowledge of the rules governing interchange fees, as well as access to various industry data. Done properly, a substantial cost reduction of 10–30% can be achieved.

While this can be handled internally, most businesses will find it necessary to enlist merchant account experts to do so on their behalf under a gain-share model. This eliminates risk and removes the need to devote internal staff to the project.