Interchange fees are a critical—but often misunderstood—component of credit card merchant processing. Every time a customer swipes their card, a small fee is deducted and distributed to the bank that issued the card. For businesses, these charges can add up quickly, especially if they process a high volume of transactions or operate in industries with elevated risk. If you’re running a business and asking, what is a high risk merchant account, understanding interchange fees is essential for controlling processing costs and staying compliant with your provider’s terms. Knowing how these fees are structured—and why they vary—is one of the most effective ways to protect your profit margins.
Defining Interchange Fees in Payment Processing
Interchange fees are transaction fees paid by the acquiring bank (your merchant bank) to the issuing bank (your customer’s bank) every time a card payment is made[1]. These fees are set by card networks like Visa and Mastercard and are non-negotiable. While processors may bundle or itemize these fees on your statement, the core rate is always dictated by the card network based on dozens of variables—such as card type, transaction method, business category, and even the amount of risk associated with the industry.
Why Interchange Fees Vary Across Businesses
There’s no one-size-fits-all approach to interchange. The same transaction could carry different costs depending on how it’s processed and what industry the merchant belongs to. For example, a keyed-in payment on a rewards card may carry a higher fee than a chip transaction with a debit card. Merchants that operate online or in regulated verticals—like supplements, digital goods, or adult content—are more likely to have a high risk merchant account, which is subject to higher interchange fees due to increased fraud and chargeback risk[2]. Understanding these distinctions allows you to better evaluate your statements and question rate increases when they occur.
Interchange
The non-negotiable base fee set by card networks. This fee is paid to the cardholder’s issuing bank and varies by transaction type.
Assessment Fees
These are additional charges from the card networks themselves (e.g., Visa or Mastercard) and are typically a small percentage layered on top of interchange.
Processor Markup
Your credit card merchant processing provider adds a margin for their services. This includes customer support, software, fraud tools, and infrastructure.
Other Fees
You might also see PCI compliance fees, monthly minimums, or early termination fees. But interchange is always the foundation of what you pay per transaction.
Why Interchange Rates Affect High-Risk Merchants More
If your business is classified as high risk—whether due to high chargeback rates, recurring billing models, or the type of product you sell—you’re likely paying above-average interchange fees. Processors must account for greater exposure to fraud and losses. Even tools that are meant to enhance security, like Plaid, can cause concern among consumers who wonder, is Plaid safe to use? This skepticism can create transaction friction or lead customers to dispute charges out of confusion. Merchants operating in these categories must work with providers who specialize in merchant svcs mend (merchant services for high-risk or non-traditional verticals), which are designed to reduce friction while complying with card network rules[3].
How Interchange Affects Profit Margins at Scale
For a small business processing $10,000 per month, a 0.2% increase in interchange might seem negligible. But for larger companies—or those with tight margins like subscription boxes, digital goods sellers, or fitness brands—it could mean thousands in annual losses. Marginal increases can come from small technical changes too, such as switching from chip transactions to manual entry, or from outdated MCC (merchant category code) assignments. If you haven’t reviewed your statements recently, you might be paying more than necessary without realizing it.
The Role of Venmo and Alternative Payments
Many small businesses explore tools like Venmo for fast, low-cost payments—until problems arise. It’s not uncommon for merchants to ask, why is Venmo declining my payment or flagging my account? That’s because Venmo and similar peer-to-peer platforms aren’t designed for business use at scale. They don’t support interchange-based billing, offer minimal fraud protection, and may freeze funds without warning. These limitations are one reason why interchange-based systems—despite their complexity—are still the most secure, stable option for legitimate businesses.
Best Practices for Reducing Interchange Fees
Use the Right MCC Code
Make sure your business is categorized accurately. The wrong code can lead to higher rates or declined transactions.
Batch Transactions Promptly
Delays in settlement can cause downgrades, where transactions qualify for higher rates. Always close your batches daily.
Minimize Card-Not-Present Transactions
If possible, use chip-enabled or contactless terminals instead of manually keying in card numbers.
Enable Address and CVV Verification
These security steps lower the fraud risk and often reduce the interchange fee associated with the transaction.
How to Evaluate Interchange on Your Merchant Statement
Your merchant statement breaks down total processing costs, but not always in a transparent way. Look for line items that reference “INT,” “IC,” or specific card types. If your processor uses tiered pricing, you may be paying flat rates that don’t reflect the actual interchange being charged[4]. Ask your provider for an interchange-plus breakdown. It will show you exactly how much is going to the card network and how much is markup. This transparency helps you assess whether your current credit card merchant processing partner is working in your best interest.
Conclusion
Interchange fees are one of the least understood yet most important components of credit card merchant processing[5]. For businesses managing a high risk merchant account or selling online, these fees can quietly chip away at profits if left unchecked. From understanding why Venmo is declining payments to determining if Plaid is safe to use during checkout, navigating modern transactions requires clarity, compliance, and the right partners. At Payment Nerds, we help merchants understand where every dollar goes—and build strategies to reduce costs, streamline operations, and improve margins. Interchange fees may be inevitable, but paying more than necessary isn’t.
Sources
- Visa. “Understanding Interchange Reimbursement Fees.” Accessed April 2025.
- Mastercard. “Interchange Rate Guide for U.S. Merchants.” Accessed April 2025.
- Federal Trade Commission. “Credit Card Processing Disclosures.” Accessed April 2025.
- Consumer Financial Protection Bureau. “How Interchange Impacts Small Business Costs.” Accessed April 2025.
- PCI Council. “Best Practices in Merchant Account Setup.” Accessed April 2025.
