Interchange

Interchange is the fee paid by the merchant’s acquiring bank to the cardholder’s issuing bank each time a card transaction is processed.

It compensates the issuing bank for handling payment risk, fraud prevention, and credit provision. Interchange fees are set by the card schemes (e.g. Visa, Mastercard) and vary based on factors such as card type, transaction value, and location.

While merchants don’t pay interchange directly, it forms a major part of the merchant service charge (MSC) — the total fee merchants pay per transaction.

Example:

A customer pays £100 using a credit card. The acquirer pays a small interchange fee (e.g. 0.3%) to the issuing bank via the card scheme, meaning the merchant ultimately receives slightly less than £100.

Used in:

Card acquiring, payment pricing, and regulatory discussions on transaction costs (e.g. EU Interchange Fee Regulation).