Short on time?
Here’s the short version.
Interchange is the issuing bank’s portion of a card transaction, not your processor’s entire fee. Your total cost can also include network charges, processor markup and fixed services. Interchange-plus makes the underlying costs and markup easier to compare.
- Two shops with the same sales volume can have different card costs.
- Your effective rate doesn’t reveal the processor’s margin.
- Compare the same credit, debit and online mix on both offers.
In this article
Most owners I sit down with have never heard the word interchange. They've been processing cards for ten years. They know they pay too much. They've never been told where the money actually goes.
When someone quotes a “simple rate,” it can be hard to see who gets which part of it. Start with the issuing bank, then follow the rest of the charge back to your own statement.
The one-sentence version
On a credit transaction, the acquiring side pays interchange to the bank that issued the customer’s card. The card network sets the applicable schedule. The price your processor charges you is a separate amount agreed with your business.
If a repair shop pays $25 in processing charges on a $1,000 domestic credit sale, its cost for that sale is 2.5%. You need the fee breakdown to know how much went to the issuing bank, the network and the processor. The example does not imply that all $25 is markup.
Where the fee actually goes
| Piece | What it pays for |
|---|---|
| Interchange | The issuing bank’s portion, calculated under the applicable network schedule. |
| Network charges | Fees for use of the card network. These can be billed separately or bundled. |
| Processing markup | The agreed amount charged for acquiring and processing the sale. |
Your statement can also include terminal rental, POS software and other service charges. They matter to the budget even though they are not interchange. The statement checklist covers 11 names to look for.
Why no two cards cost the same
The card product, how it was accepted and the applicable program can change its interchange category. A domestic consumer card tapped at the counter and an international commercial card used online need not have the same cost underneath.
Two businesses with identical monthly card sales can have different wholesale costs. A quote based on someone else’s card mix cannot tell you exactly what your own month would cost.
How the pricing model changes what you see
Flat rate
A provider can bundle several underlying costs into a price for a category of payments. The amount can still differ between credit and debit, in person and online. Check the fee per transaction as well as the percentage.
Tiered pricing
An agreement may group transactions into categories such as qualified and non-qualified. Look for the rules that move a card into another tier and the number of transactions billed in each one.
Interchange-plus
Interchange-plus makes the underlying card costs and the processor’s markup easier to compare. Interchange, network charges and markup do different jobs, so ask for the breakdown rather than treating the whole fee as the processor’s cut. Compare your own payment mix, and keep terminal rental, software and monthly services in the picture.
Two questions owners ask
Does switching providers lower interchange?
Moving an otherwise identical transaction to a new provider does not by itself rewrite the applicable network schedule. The parts you can compare include processor markup, per-transaction fees, monthly services and how the provider qualifies and reports your sales.
Does the headline rate tell me my monthly cost?
Only if you know which transactions it covers and what else is billed. On a month with $30,000 in card sales and $750 in processing fees, your effective processing rate is 2.5%. That calculation still does not reveal the processor’s margin.
One more thing: debit is different
Interac debit has its own pricing arrangements. Your provider may quote a flat amount, a percentage plus a fixed amount, or a bundle for debit. Check the fee for a $10 debit payment and a $100 debit payment on your own plan.
How to read your own number
- Take the total settled card sales and corresponding processing fees for the same month.
- Divide fees by sales and multiply by 100. Record separately whether equipment or software is included.
- Ask for credit, debit and online fees to be shown separately and have a provider price the same mix.
What to take back to your business
- Interchange, network charges and processor markup do different jobs.
- “Effective rate” describes the costs included in your calculation. It cannot identify markup on its own.
- Keep debit and services visible when comparing the full monthly bill.
Fair questions
What is interchange, and who receives it?
On a credit transaction, the acquiring side pays interchange to the bank that issued the customer’s card. The card network sets the applicable schedule. Your processor’s agreed price is a separate amount, and the full charge can also include network charges and processing markup. Equipment and software are not interchange.
Will switching payment processors lower my interchange costs?
Moving an otherwise identical transaction to another provider does not by itself change the applicable network schedule. Compare the parts you can actually evaluate: processor markup, per-transaction fees, monthly services and how sales are qualified and reported. Use your own payment mix rather than a quote based on someone else’s cards.
How do I calculate my effective processing rate?
Take settled card sales and the corresponding processing fees for the same month. Divide fees by sales and multiply by 100. Record separately whether equipment or software is included, and keep that definition consistent when comparing quotes. The resulting effective rate does not identify the processor’s margin on its own.
Why do different cards have different interchange costs?
The card product, how it was accepted and the applicable program can change the interchange category. A domestic consumer card tapped at the counter need not carry the same underlying cost as an international commercial card used online. Identical monthly sales totals therefore do not establish identical wholesale costs.
Sources & further reading
Rates, program rules and eligibility can change. Check your current written agreement and the linked Canadian sources. This is a practical guide, not legal advice.