Most U.S. merchants pay credit card processing fees without fully understanding the complex web of costs involved. At the center is interchange. Card-issuing banks and card networks set and collect fees for each transaction. This fee, anywhere from 70% to 90% of total processing costs, is set by credit card networks and collected by the banks that issue the credit cards.
Interchange fees are hidden behind so many layers of intricate terms and conditions that it’s nearly impossible to understand.
How interchange fees are structured
Interchange fees are sometimes called “swipe fees.” They’re fees that the merchant’s bank pays to the cardholder’s bank whenever a purchase is made, and in the end, the merchant ends up covering the cost. Card networks like Visa™ and Mastercard™ set the rates for these fees, typically as a percentage plus a fixed charge.
These networks also establish hundreds of categories for interchange fees. Each one corresponds to a specific transaction scenario:
Card type
Debit or credit? Consumer or commercial? Basic or reward? Each type of card can have various restrictions and fees. Reward and corporate credit cards typically carry higher interchange fees that fund those cardholder perks. Basic debit cards, which have no additional rewards or perks, have a lower card fee.
Transaction method
Card-present transactions happen when customers swipe their cards or use a chip reader. These transactions usually have lower fees because they include proof that the card was physically there.
Card-not-present transactions occur when customers enter their credit card information online or manually. These transactions tend to be more expensive and make up most sales for online and mixed merchants.
Merchant category
Every business gets a merchant category code (MCC) based on what they sell or how they operate. This code can affect the fees they pay to process credit card payments.
Some industries, like large supermarkets, charities, and government or educational organizations, can get lower fees. Businesses that face higher risks of fraud or chargebacks usually pay more.
Type and amount of data collected
Credit card transactions can have three levels of transaction data.
- Level 1 includes basic details like the transaction date, card number and purchase amount.
- Level 2 has everything in Level 1, plus additional information like a customer reference number, invoice number and sales tax.
- Level 3 includes all Level 2 data, as well as detailed information about each product or service purchased.
If you include extra details with a transaction, you may qualify for lower fees. But if you don’t meet these requirements, the transaction could be downgraded to a more expensive fee category.
Interchange tables
Card networks publish interchange fee tables every six months with updated rates for each merchant category. But these tables are complex — Visa’s merchant interchange fee table runs 60 pages alone. The tables set fees for everything from basic retail store swipes to complex B2B transactions.
Rates vary dramatically. A regulated debit card transaction that’s subject to the Durbin Amendment cap might incur a fee of only 0.05% + $0.21. At the high end, a premium reward or corporate credit card used for an online purchase can cost around 3% + $0.10 (or even more) in fees.
The impact on merchants is brutal. You can’t control which card your customer uses, and you won’t know what fees that card will have when they pay and there is no way to visually identify the card type. If a customer makes a $100 purchase in person with a debit card, the card network may charge you $0.27 in interchange fees. If that customer makes the same purchase online with a high-end travel rewards card, the same card network can charge you $2.60 — nearly ten times the fee for a debit card. So we are left to trust that processors will charge the right fees…
Interchange fees: An elaborate shell game
There’s no reason interchange fees should be complex. Card networks standardize and publish their fees, and every processor pays the same rate. Simple, right?
The truth is that payment processors pad that base cost with all kinds of unnecessary and unjustified extras before it reaches you, the merchant.
Processors usually call this interchange-plus (or cost-plus) pricing. They claim it’s their most transparent option because it shows the card network’s fee plus their markup. But many processors still find ways to inflate or obscure fees, even on these cost-plus plans.
Here’s how it works:
- A card network (let’s say Visa) sets an interchange fee: 1.65% + $0.10.
- Your payment processor adds a markup to that fee and charges you 1.80% + $0.10. They don’t label the markup, so you think you’re only paying Visa’s mandatory fee.
- Your processor may also combine interchange categories into a single category, gives it a vague name and charge you a higher blended rate that doesn’t actually exist in Visa’s chart.
- Your processor may even add an assessment or junk fee. They add a markup and label it Network Service Fee or Settlement Funding Fee to imply the charge is coming from some regulatory or compliance-related fee when it’s just another mark up.
Most merchants don’t have the time or tools to check their statements against official exchange schedules. If you don’t compare each line carefully, you won’t notice any errors, and it would seem that’s processors are banking on that (litterally).
Interchange-plus doesn’t guarantee actual “Interchange”. Regulators don’t standardize or monitor the term’s use. And padding interchange fees or adding fictitious categories is legal under current law. So it’s on merchants to work with trusted providers or get a third-party audit to make sure they’re really paying what they should be.
Incomplete data drives up fees
Earlier we mentioned how each transaction’s data is categorized and labelled. Providing additional transaction data to credit card networks reduces interchange rates for transactions that include the enhanced data. A card network’s interchange fees based on data levels for business cards might look like this:
- Level 1 (standard data): 2.70% + $0.10
- Level 2 (enhanced transaction data): 2.50% + $0.10
- Level 3 (line item data): 1.90% + $0.10
It may seem like pennies, but in large transactions, the differences are significant. And over many sales, these savings can add up quickly for merchants. Businesses handling corporate or government credit and debit cards (usually Level 2 or Level 3 transactions) can significantly lower interchange costs. And it all revolves around sending more complete data about the transaction.
But many merchants never see these savings because their payment systems or providers may effectively prevent them from qualifying. Here’s how processors or software can limit merchant savings:
Lack of support or awareness
If you’re a merchant and don’t know about Level 2 or Level 3 data, you’ll end up paying higher fees without even realizing it. Most processors won’t tell you this, because lower fees don’t help their bottom line. Make sure to ask your processor about interchange optimization.
Gateway & platform limitations
Not all payment gateways send Level 2 or Level 3 data with each transaction. Merchants might need to enter detailed information manually or use a system that does it automatically. But if your payment processor doesn’t send this extra data to Visa, Mastercard, or another credit card network during settlement, the transaction will not meet the enhanced data requirements, and the pricing will move to a higher category.
You may think you’re paying the lower Level 3 rates, only to discover that your provider hasn’t enabled it properly. Processors that don’t invest in systems capable of handling this data, or that intentionally turn off Level 3 data collection, can make you pay higher interchange fees.
Downgrades
Any missing data element required for a Level 2 or Level 3 interchange rate causes a transaction to “downgrade” to a more expensive interchange category. Things like not settling a batch within 24 hours or not including address verification on an e-commerce transaction can bump the fees from a lower-cost category to a higher one.
These rules seem to confusing by design, and merchants usually don’t learn about them until after they have paid higher fees for years. Your processor might bury a downgraded transaction in a statement under an interchange category name like EIRF or Standard.
Split savings
Even if you’re doing everything right, passing Level 2 and Level 3 data, using a capable gateway, and working with a processor that claims to offer “pure” interchange pricing, you still might not be getting the full benefit. Why? Because some processors quietly take a cut of the savings you’re creating.
We’ve seen cases where businesses are only keeping 20% to 50% of the interchange discount that comes from submitting enhanced data. In some extreme cases, merchants were losing out on 80% of those potential savings, money that should’ve gone back into their business.
It’s a practice that’s rarely disclosed and hard to spot unless you’re closely auditing your statements. So even when you’re helping lower the interchange cost by providing more data, the processor may still be pocketing most of the difference. If you’re passing the data, you should be keeping the savings.
Unqualified transactions are costing merchants
A transaction’s data level directly affects the interchange fee, but when processors fail to qualify merchants for Level 2 or 3 transactions, the result is obscured and artificially inflated interchange fees.
This is one of the “hidden” ways merchants lose money to payment processors. Unlike malicious fee padding, payment processors failing to support Level 3 data can often be unintentional. But the higher fees that merchants end up paying certainly don’t hurt the processor.
On the surface, interchange-plus pricing sounds fair. Your processor just passes along whatever the card networks charge, right? But processors can profit from data-level downgrades.
If you’re on a tiered or flat-rate plan and your transaction doesn’t include Level 2 or Level 3 data, it might get labeled as “non-qualified,” which means you get hit with a higher fee. The processor pockets the extra cost. So while they seem neutral, they actually have little incentive to help you lower your costs.
Technically savvy processors make it easy. They offer tools and gateways like FiServ, CardPointe, NMI, PayTrace and others that automatically include the extra data needed to qualify for the lowest possible interchange rates.
If you accept business or government cards, ask your processor about Level II and III data support. A simple question could mean big savings.
Costs merchants don’t see
Transactions are more “secure” when the card is present (in person) than when it’s not (online). Interchange rates reflect this. Card-not-present transactions generally carry higher interchange to account for fraud risk. Likewise, different card products (basic, rewards, elite, corporate, debit, prepaid, etc.) carry different interchange rates.
It seems straightforward, so what’s the problem? Well, at the point of sale, merchants have no way of knowing which specific interchange category a transaction will fall into.
When a customer hands over a card, you might see the brand (Visa, Mastercard, etc.) and maybe the word debit or business. But you don’t see the interchange rate. Two Visas could have interchange rates that differ by over 1.5 percentage points, yet the cards look nearly identical to a cashier.
A Visa Debit card regulated under the Durbin Amendment might have an interchange fee of 0.8% effectively, including the flat $0.21 fee Durbin charges. A Visa Infinite Rewards card would be a different story and could cost the merchant around 2.4%, while a Visa Corporate card would be even more—around 2.5–2.7%.
Merchants price their goods and services without knowing what fee a purchase will incur. If your margins are tight, a wave of customers using high-end rewards cards can mean the difference between profit and loss.
The consequences of credit card industry opacity on interchange fees
The fact that the true costs of these fees are hidden from merchants has a greater impact than just on businesses’ bottom lines. Here’s how inflated interchange fees can hurt entire industries.
Is it an interchange fee or a markup?
If your payment processor charges you 2.9%, does that mean the card network’s interchange fee is 1.8% and the processor’s markup is 1.1%? Or is the interchange fee 2.5% and the markup 0.4%? There’s no way a merchant would ever know without reverse-engineering every transaction. And your payment processor won’t make that easy.
Payment processors bank on the fact that most small businesses don’t have the time or expertise to examine these fees. That lack of transparency masks how expensive a service actually is.
No reward for lower-cost cards
With flat-rate pricing, the processor charges the same fee no matter what kind of card your customer uses. So if someone pays with a basic debit card that only costs the processor 0.5%, you might still get charged 2.9%. The processor keeps the extra 2.4% as profit without telling you.
The processor makes money on every transaction, especially the cheaper ones. Your low-cost debit sales help cover the cost of higher-fee transactions, even if you rarely process those.
Most processors set flat rates around 2.9% to 3% because that’s the high end of what premium rewards cards and online payments cost. Most of your sales might be in-person debit cards (which are cheaper). But you’re still paying like each sale is a pricey online credit card transaction.
Bottom line: You end up overpaying on a lot of your sales, and the processor pockets the difference.
The New Payments Gold Rush: Embedded Payments and the Erosion of Transparency
As regulators close in on traditional acquirers, the payments industry in 2025 is experiencing a modern-day gold rush. The hottest trend? Embedding payments directly into software platforms through exclusive agreements. These deals create powerful new revenue streams for software providers, while adding yet another intermediary profiting from every transaction.
But the consequences are serious.
Exclusive embedded payment arrangements often bypass acquirer and PayFac regulations entirely, removing visibility into actual interchange fees and masking the true cost of transactions. They also strip away market competition, limiting merchants’ ability to shop for better pricing or terms.
Even more concerning, software companies gain leverage by controlling not just payment processing, but customer and operational data. This control can be used to create sticky dependencies that keep merchants locked in, trapped by the very platform that was supposed to help them run their business.
For processors and platforms, this setup is the holy grail: recurring revenue, no oversight, and total control. But for merchants, it’s a serious threat. Predatory pricing can flourish behind closed systems, with no transparency, no choice, and no real recourse.
What appears to be innovation is, in many cases, a quiet power grab, one that could reshape the industry at the expense of the very businesses it claims to serve.
The hidden costs of “simple” pricing
Flat-rate and all-in-one payment plans sound great, easy setup, predictable costs, and no surprise fees. For small businesses, that simplicity can be appealing. But what you gain in convenience, you lose in transparency.
These pricing models keep fees high by baking in extra costs and hiding the details. Merchants don’t see a breakdown of what they’re actually paying, just one flat rate that often sits well above the true cost. It’s no surprise that many established businesses eventually move to interchange-plus once they realize how much money they’ve been leaving on the table.
When most of the industry flows through a few major flat-rate processors, the real cost of interchange, and all those add-ons, stays hidden. If Visa or Mastercard raises fees, your provider might quietly raise your flat rate too, and you’d never know the reason.
That lack of visibility is the problem. It protects processor profits and keeps merchants in the dark.
It’s time for transparency & regulatory oversight
Merchants in the U.S. paid an estimated $160.7 billion in credit and debit transaction fees in 2022. This figure rose to a stunning $224 billion in 2023, and interchange fees made up $143 billion of it.
With how much money flows through credit card fees, you’d think there would be strict rules on how everything is disclosed. And to be fair, there’s been growing pressure to bring more transparency to the system and cut down on the costs. But right now, there’s no federal law requiring processors to clearly label or explain interchange fees to merchants.
The Durbin Amendment put caps on debit card fees from big banks and said those fees should be “reasonable and proportional.” But it didn’t require processors to be transparent about what they charge or how they present those fees on your statement.
Visa and Mastercard say that merchant statements should show things like interchange and assessments. But those are guidelines, not hard rules. There’s no standards across the industry which means there’s no consistent definition for terms like interchange or pass-through. One processor may even have their own set of interchange rates and fee categories that mimic the names as the current interchange categories.
This mix-and-match labeling makes it nearly impossible for merchants, or even regulators, to compare fees or know exactly what they’re paying for. And we don’t believe that the confusion is by accident.
Current challenges & developments
So interchange feel are often purposefully misleading. What can we do about it? Here are the current issues surrounding clarifying concealed fees and what developments are on the horizon.
The legality of padding interchange fees
There’s nothing explicitly illegal about charging a merchant more than the actual interchange fee and labeling it under the interchange heading. If your processor’s contract spells out those terms and you agree to them, they can do it.
This legality exists in a gray area that lawmakers have yet to directly address. Processors are largely unregulated at the federal level in terms of price controls or disclosure requirements. There’s no specific “truth-in-fee-setting” law for merchants akin to truth-in-lending laws for consumers.
Industry resistance to itemized disclosure
The processing industry, led by major banks and networks, has historically fought hard against interchange regulation. (Remember the long legal battle over the Visa and Mastercard antitrust settlements?) Payment networks tend to resist any requirement to open up the books on interchange components.
Networks often present interchange fees as complex, technical reimbursements that outsiders don’t need to see broken down or wouldn’t understand. When the EU mandated clearer disclosure of payment costs and capped interchange, U.S. industry lobbyists warned of negative consequences. Predictably, credit card issuers in the U.S. point to reduced rewards and banking revenues in the EU as cautionary tales.
Legislative interest
Lately, lawmakers have been taking a closer look at swipe fees, especially how high they are and how little competition there is behind them. One big push has come from the Credit Card Competition Act, which aims to bring in competing networks to help drive costs down.
Transparency is also on their radar. In congressional hearings throughout 2022 and 2023, merchants shared just how confusing and inflated their processing bills have become. Some lawmakers have floated ideas like requiring simpler, lower-cost options from card networks or making processors clearly disclose their fees. Sounds like progress, right?
Maybe, but nothing has passed yet. So far, it’s mostly talk. Some regulators are cracking down on “junk fees” in other industries, and if enough merchants keep speaking up, credit card fees could be next on the list.
VeriFee and industry advocates
Private-sector advocates are pushing for real transparency in credit card processing. At VeriFee, we’re all about clarifying confusing costs, and we’ve taken our findings to Capitol Hill to expose deceptive practices like interchange padding, fake fees, and the misuse of terms like pass-through.
We’re actively advocating for standardized merchant statements, clearer fee disclosures, and regulatory definitions that prevent processors from disguising markups as legitimate network costs.
Other organizations like the Merchant Advisory Group (MAG) and the Merchants Payments Coalition (MPC) are also involved. MAG represents major U.S. retailers and is pushing for lower fees, open access and transparent pricing through industry engagement. MPC is a broad alliance of merchants and trade groups advocating for policy reforms like the Credit Card Competition Act to lower swipe fees and increase choice for businesses.
Together, we’re fighting the flurry of hidden fees and bringing long-overdue scrutiny to an industry that has operated in the shadows for far too long.
Network rule changes
Visa, Mastercard, and the other card networks could make interchange fees more transparent. All it would take is a rule saying that any fee labeled interchange on a merchant’s statement must match the official, published rate for that transaction.
But many of the big acquirers, banks, PayFacs, and ISOs profit from the current system. So the networks have little reason to crack down, unless they’re pushed by regulators or hear enough noise from merchants.
Right now, there’s no real oversight on how these fees are presented. That’s why processors can hide costs behind a maze of vague, misleading labels. It’s misdirection, plain and simple, designed to keep merchants guessing.
Meanwhile, fees keep going up. In 2023, Visa and Mastercard’s average credit card interchange fee hit 2.94%, up from around 2.2% just a few years earlier. And thanks to the lack of transparency, most merchants have no idea why their costs are rising, or what they’re actually being charged for. With the invention of surcharging, this will only get worse in 2025.
We’re shining a light on these issues, but real change will likely take stronger regulation or serious pressure from merchants demanding fairer treatment.
Until then, the best defense is a good offense. Read the fine print, ask for detailed interchange breakdowns and consider a third-party audit. The more business owners push back, the harder it becomes for processors to hide behind confusing fees.
Why Regulators Are Barking Up the Wrong Tree
Let’s be real, when it comes to credit card processing, Congress and regulatory bodies are looking in the wrong direction.
Yes, interchange is expensive. But capping it isn’t the answer. Instead of slapping arbitrary limits on interchange costs, regulators should simplify interchange and fight for true transparency at every step of the payments value chain.
Let’s get full visibility from acquirers, processors and every company involved in processing payments:
- PayFacs
- ISOs
- ISVs
- Embedded payments platforms
- SaaS companies bundling processing
- Agents and resellers
If you touch a transaction, you should be legally required to disclose regulated interchange-level data and costs. Period.
The current system is deliberately confusing. Processors hide behind complex terminology. Software companies quietly tack on extra margins. And small and midsize businesses are left in the dark. It’s no wonder most merchants don’t even know what interchange is, let alone how much they’re really paying.
We need to standardize the industry. Here’s how:
- One definition for terms like interchange, cost-plus and pass-through so everyone speaks the same language.
- Standardized, easy-to-read statements that show all interchange-level details.
- Disclosure standards for processors and platforms so everyone sees how rates are constructed.
- Penalties for companies that don’t meet disclosure standards.
There’s already a blueprint for this—the Truth in Lending Act (TILA). Passed in 1968, TILA forces lenders to standardize how they present loan costs so consumers can make informed choices.
Why don’t we have the same thing for payment processing?
We should. And if we did, we believe we could see an immediate 30–50 basis point reduction in fees for small and midsize businesses. That’s $18.125 billion back into the hands of Main Street, not Wall Street. The Fortune 500s already have the leverage, data and custom pricing to avoid the worst of this mess. Millions of smaller companies are footing the bill.
Even worse? These hidden fees often get passed down to consumers in the form of predatory surcharging and quiet price hikes, and more recently, surcharges. That kind of stealth inflation slowly bleeds people dry, 3% here, 2.5% there, on everything from a coffee to a dentist appointment.
If we want a fairer system, it starts with the truth.
Truth in pricing.
Truth in interchange.
We at VeriFee are here to demystify interchange fees. But we know we can’t do it alone. Real change takes a collective push from business owners, regulators, and anyone who wants transparency in how payments are handled.
When we understand how interchange works, we’re in a much better position to push for reform. Shedding light on these fees is the first step toward building a fairer, more transparent payment system for everyone.
