Interchange fees
Interchange fees are charges for accepting a card payment that go to the bank that issued the customer's card. The card network sets the rates. You, as the merchant, bear the cost, which reaches you through your payment processor.
This entry is part of the Fairview Audit glossary. It explains one piece of a card processing statement so the rest of the statement is easier to read.
Why interchange fees matter in a cost review
Card fees are built from layers. Interchange is one layer. The card network adds its own fees, and your processor adds a margin on top. The three together make up what you pay on each sale.
Interchange is set outside your contract, so you cannot negotiate it directly. The parts you can influence are the processor's margin, the way the fees are presented and the contract terms. A review of your statements looks at whether you are charged what your agreement says. This is the focus of merchant account fees work.
A plain-words illustration
A customer pays for a meal with a card. Your processor sends the payment through the card network to the customer's bank. The bank approves it and keeps a fee for its part. The network takes a fee, and your processor takes a fee. You receive the sale amount minus all three.
On the statement, you may see these fees split into separate lines, or you may see a single combined rate. Which one you see depends on the pricing model in your agreement.
Pricing models you may meet
- Pass-through pricing. Interchange, network and processor fees are listed separately. This is the most open format. Interchange can change as the network updates its rates.
- Partly combined pricing. Interchange is joined with some other fees on the statement.
- Blended pricing. One rate covers everything. It is simpler to read and steadier, but you cannot see how much of it is interchange.
[VERIFY: confirm current pricing model names and how each processor uses them]
How it shows up in a review
A partner firm usually asks for several months of processor statements and the processing agreement. Common checks include:
- whether the fees listed match the pricing model in the agreement
- whether the processor margin has changed since signing
- whether sales were charged at a higher category than needed, for example because of how a payment was entered
- whether extra monthly or annual fees were added without a clear basis
- whether your business type is classed correctly
Because interchange rates differ by card type and how the payment was taken, two sales with the same value can carry different fees. That is normal. A review looks for patterns that do not fit the agreement. Whether a given firm offers this review, and on what terms, is for the firm to state. [CONFIRM: a partner firm supplies and approves how it reviews card processing statements]
Common mistakes
- Reading only the bottom line. The total hides which layer changed.
- Assuming the whole fee is fixed. Part of it is set by the network and part by your processor.
- Not keeping old statements. Without history, you cannot see when a change began.
- Skipping the agreement. Fees named in the statement should trace back to the contract.
- Changing processors without comparing the full contract. Look at length, cancellation terms and added charges. [VERIFY: have counsel review any termination clause before you switch]
- Mixing up interchange with all card fees. Interchange is a part, not the whole cost.
Tip: Keep the processing agreement, every amendment and the most recent statements in one folder before you ask anyone to review them.
Related terms and pages
Fairview Audit connects you with finance professionals and partner firms. The partner firm performs any review, and the engagement and fees are between you and the firm.
Tell us what you need reviewed. We match you by hand with an independent partner firm. You keep your existing vendors.Find out what you are overpaying.