Each payment card transaction a merchant processes is accompanied by an interchange fee, which is paid to the issuing bank.
The card brands manage the interchange rate, which can fluctuate based on:
- the type of transaction processed (card-present or card-not-present)
- the type of card used (credit or debit)
- the type of merchant processing the payment (low or high-risk)
- the geographical region of the issuer
The interchange rate is usually a flat fee plus a percent of the total transaction amount. Of all the processing fees paid, the interchange fee is usually the most expensive, sometimes comprising 70-90% of all the costs associated with a transaction.
The interchange fee is not refunded in cases of a merchandise return or a chargeback.