# Interchange Fees Explained: What They Are and Who Pays Them

> What are interchange fees? A 2026 guide to how card interchange works, what drives the rate, interchange-plus vs flat pricing, and how to lower your true cost.
- **Author**: Aarthi Poonia
- **Published**: 2026-07-19
- **Category**: Payments, Fees, SaaS
- **URL**: https://dodopayments.com/blogs/interchange-fees-explained

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Interchange fees are the fees a merchant's bank pays to the customer's card-issuing bank every time a card is used, and they are the single largest component of what it costs you to accept card payments. If you searched "what are interchange fees," the short answer is this: interchange is the wholesale cost of a card transaction, set by the card networks, and it is baked into every rate you pay, whether or not you ever see it itemized.

Interchange matters because it is mostly non-negotiable and it quietly sets the floor on your processing costs. Understanding it changes how you read a pricing quote, why some cards cost more than others, and where you actually have room to save. For a SaaS or digital business processing thousands of transactions, small differences in how interchange flows through your pricing add up to real money.

This guide explains what interchange fees are, who sets and receives them, what drives the rate up or down, the difference between interchange-plus and flat pricing, and the practical levers you have to lower your true cost.

## What Interchange Fees Actually Are

Every card transaction involves at least four parties: the customer, the customer's bank (the issuer), the merchant, and the merchant's bank or processor (the acquirer). When a customer pays, the acquirer pays a fee to the issuer for the transaction. That fee is the interchange fee.

The card networks (Visa, Mastercard, and others) set interchange rates, but they do not keep the money. Interchange flows to the issuing bank as compensation for funding the transaction, carrying fraud risk, and running the rewards programs that come with many cards. This is why a premium rewards card costs more to accept: the interchange funds the rewards.

So the chain of who pays whom looks like this:

```text
Customer pays with a card
  -> Acquirer (your processor) pays interchange to the issuer
  -> Card network sets the interchange rate and takes a separate small assessment
  -> Acquirer/processor adds its own markup
  -> You pay the total as your processing rate
```

The critical point is that interchange is a wholesale cost you almost never control directly. What you can influence is the markup on top of it and, to a degree, which cards and methods your customers use.

## Who Sets Interchange and Who Receives It

It helps to separate the three fee layers that make up your total card cost, because "interchange fees" often gets used loosely to mean all of them.

| Layer | Set by | Received by | Negotiable? |
| --- | --- | --- | --- |
| Interchange | Card networks | Issuing bank | Rarely |
| Network assessment | Card networks | Card network | No |
| Processor markup | Your processor / MoR | Processor / MoR | Sometimes |

Interchange is the biggest of the three and goes to the issuer. The assessment is a small slice the network keeps. The markup is what your processor or Merchant of Record charges for its service, and it is the only layer with meaningful room to differ between providers. When you compare providers, you are really comparing the markup, because interchange and assessments are largely the same for everyone.

## What Drives Interchange Rates Up or Down

Interchange is not a single number. It varies based on characteristics of the transaction, and knowing the drivers explains why your effective rate moves around.

- **Card type.** Premium rewards and corporate cards carry higher interchange than basic debit cards because they fund richer benefits.
- **Card present vs card not present.** Online transactions (card not present) generally carry higher interchange because they are riskier than in-person swipes. Most SaaS is card not present by nature.
- **Domestic vs cross-border.** International transactions often carry higher interchange and additional cross-border fees, a cost we detail in our [cross-border payments guide](https://dodopayments.com/blogs/cross-border-payments-guide).
- **Merchant category.** The network's category code for your business affects the rate.
- **Data quality and authentication.** Providing richer transaction data and using [3D Secure](https://dodopayments.com/blogs/3d-secure-3ds-payment-authentication) authentication can qualify some transactions for better rates.

The takeaway is that your blended interchange depends on your customer mix. A business serving mostly consumers on premium rewards cards internationally will see a higher blended cost than one serving domestic debit users, even at the same headline rate.

The worst case for a B2B seller sits at the top of that range. When an enterprise buyer settles a large invoice with a commercial virtual card, you pay card interchange on an amount that would previously have arrived by bank transfer at near-zero cost, and the rebate the buyer earns is funded out of your fees. We work through [the seller-side cost of B2B virtual cards](https://dodopayments.com/blogs/b2b-virtual-card-payments) separately.

## Interchange-Plus vs Flat Pricing

Providers package interchange into your pricing in two main ways, and the choice affects transparency more than total cost.

**Interchange-plus pricing** itemizes the true interchange for each transaction and adds a fixed processor markup on top. You see exactly what interchange was and what the processor charged. This is transparent and can be cheaper for businesses with a favorable card mix, but the bills are complex and variable, which makes forecasting harder.

**Flat pricing** charges a single blended rate (for example, a percentage plus a fixed amount per transaction) regardless of the underlying interchange. The processor absorbs the variability. This is simpler and predictable, which most SaaS teams prefer, at the cost of not seeing the interchange line itemized.

| Dimension | Interchange-plus | Flat pricing |
| --- | --- | --- |
| Transparency | High (itemized) | Low (blended) |
| Predictability | Lower (varies per card) | Higher (fixed rate) |
| Billing complexity | High | Low |
| Best for | High-volume with finance team | Most SaaS and digital sellers |

Neither is universally cheaper. Interchange-plus can save money if your card mix is favorable and you have the finance capacity to manage variable bills. Flat pricing trades a little theoretical savings for simplicity and predictability. [Dodo Payments](https://dodopayments.com) uses a flat model at 4% + 40c per domestic US transaction, so the interchange variability is absorbed into one predictable rate. See [Dodo Payments pricing](https://dodopayments.com/pricing) for the full structure and our [payment gateway comparison](https://dodopayments.com/blogs/payment-gateway-comparison) for how models differ.

> Merchants fixate on shaving the markup and forget that interchange is the bigger number and it is mostly fixed. The real question is not "who has the lowest headline rate" but "which pricing model matches how my finance team wants to operate." Predictability is worth more than a fraction of a percent for most teams.
>
> \- Ayush Agarwal, Co-founder & CPTO at Dodo Payments

## How to Actually Lower Your Interchange Cost

You cannot negotiate interchange itself in most cases, but you have real levers on your effective cost.

- **Encourage lower-cost payment methods.** Bank transfers and local rails often carry far lower fees than premium credit cards. Offering [ACH](https://dodopayments.com/blogs/accept-ach-payments-from-customers) or local methods where sensible reduces your blended cost.
- **Improve authorization data.** Passing richer data and using authentication can qualify some transactions for better interchange categories.
- **Reduce failed and retried charges.** Every failed authorization and retry has a cost. Cutting [involuntary churn](https://dodopayments.com/blogs/involuntary-churn-failed-payments) reduces wasted processing.
- **Match your pricing model to your mix.** If your card mix is favorable and you have finance capacity, interchange-plus may save money. If not, flat pricing protects your margin and your time.
- **Consolidate your stack.** Fewer intermediaries between the customer and your payout means fewer places for markups to stack.

The goal is not to obsess over a number you cannot change, but to shape the transaction mix and pricing model you can. That is where the durable savings live.

## A Worked Example: Reading a Processing Rate

To make interchange concrete, walk through a single transaction. Suppose a customer pays $100 with a premium rewards credit card, online, from another country.

- The interchange for that card type and scenario might be roughly 1.8% plus a small fixed amount, paid to the issuer. On $100, that is about $1.80 plus a few cents.
- The network assessment adds a small slice, perhaps 0.13%, or about $0.13.
- The processor or Merchant of Record markup covers everything else the platform does, and it is where providers differ.

Under interchange-plus pricing, you would see each of those lines and the markup itemized. Under flat pricing, you would simply pay a single blended rate that already accounts for all of them. The same transaction can look very different on a statement depending on the model, even when the total cost is similar.

The lesson is that a headline rate hides a stack. When a provider advertises a low markup but your customers use premium international cards, your effective cost is still driven by the interchange underneath. This is why comparing providers on the markup alone can mislead you, and why predictability often matters more than chasing the theoretically lowest rate. It also explains why the same product can be cheaper to sell to domestic debit users than to international rewards-card users at the identical published rate.

## Why Interchange Matters More for Global SaaS

For a domestic business, interchange is a fairly stable cost. For a global SaaS, it becomes a moving target because cross-border transactions and international cards carry higher interchange and extra fees. As you expand into new markets, your blended cost shifts with your customer geography.

This is why interchange, cross-border fees, and currency conversion are best understood together. A provider that offers local payment methods can route customers onto cheaper local rails, lowering the interchange burden while improving conversion. Our guides on [European payment methods](https://dodopayments.com/blogs/european-payment-methods-saas) and [international payment gateways](https://dodopayments.com/blogs/international-payment-gateway) show how method choice changes the cost equation market by market.

For the mechanics of how the pieces fit, Dodo's docs cover [the integration guide](https://docs.dodopayments.com/developer-resources/integration-guide), [subscriptions](https://docs.dodopayments.com/features/subscription), and [webhooks](https://docs.dodopayments.com/developer-resources/webhooks) for payment lifecycle events.

## FAQ

### What are interchange fees in simple terms?

Interchange fees are the fees your payment processor's bank pays to the customer's card-issuing bank on every card transaction. The card networks set the rate, but the issuing bank receives the money as compensation for funding the transaction, carrying risk, and running rewards programs. Interchange is the largest component of card processing costs.

### Who pays interchange fees, the merchant or the customer?

The merchant ultimately pays interchange, because it is built into the processing rate the merchant is charged. Technically the acquiring bank pays interchange to the issuing bank, but that cost is passed through to the merchant as part of the total fee to accept card payments.

### Can I negotiate interchange fees?

Interchange itself is set by the card networks and is rarely negotiable for most businesses. What you can influence is the processor markup on top of interchange, the pricing model you choose, and your transaction mix, such as encouraging lower-cost payment methods and improving authorization data.

### What is the difference between interchange-plus and flat pricing?

Interchange-plus itemizes the true interchange for each transaction and adds a fixed processor markup, giving full transparency but variable, complex bills. Flat pricing charges one blended rate regardless of the underlying interchange, giving predictability and simplicity. Neither is universally cheaper; it depends on your card mix and finance capacity.

### Why do some cards cost more to accept than others?

Premium rewards cards, corporate cards, and international cards carry higher interchange than basic domestic debit cards. The higher interchange funds the rewards and covers the added risk. This is why your blended processing cost depends on the mix of cards your customers use.

## Final Thoughts

Interchange fees are the part of your payment costs you mostly cannot change, which is exactly why understanding them helps. Once you know interchange is the fixed floor and the markup is the negotiable layer, you can stop chasing headline rates and start shaping the things that matter: your transaction mix, your payment methods, and a pricing model that fits how you operate.

For a predictable, flat approach that absorbs interchange variability, review [Dodo Payments pricing](https://dodopayments.com/pricing), and to see how method choice lowers cost globally, read our [cross-border payments guide](https://dodopayments.com/blogs/cross-border-payments-guide).
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