Payments
Interchange Fee
Definition
The fee paid by the merchant’s acquirer to the cardholder’s issuer on each card transaction. The largest component of the cost a merchant pays to accept cards.
Key takeaways
- Interchange is paid by the acquirer to the card issuer, and passed through to the merchant.
- It is the largest component of card acceptance cost, alongside scheme fees and acquirer margin.
- Rates vary by card type, geography and authentication, so deposit mix drives blended cost.
- Bank transfer and open-banking rails avoid interchange entirely, which is a main driver of their adoption.
Why it matters
Interchange is the wholesale layer of card acceptance cost. On every transaction the acquirer pays the issuing bank a fee set by the card scheme, and that fee is passed through to the merchant inside the total charge, alongside the scheme fee and the acquirer’s own margin. Rates vary by card type, by whether the transaction is domestic or cross-border, and by how it was authenticated, which is why a merchant’s blended cost of acceptance depends heavily on the mix of cards its customers actually use.
Gambling sits in a high-risk merchant category, so the sector’s all-in acceptance costs have always run above general retail, and the structure of the fee is one reason operators invest in alternative rails. Bank transfer, open banking and local schemes bypass interchange entirely, which is a large part of why open-banking deposits and instant-payout rails have been adopted so quickly where they exist. The other reason is that the card route carries chargeback exposure that the bank rails largely do not. Anyone reading a payments line in an operator’s accounts should therefore look at the deposit mix rather than at a single blended rate, because the mix is where the cost is actually decided.
Frequently asked questions
Who actually receives the interchange fee?
The bank that issued the cardholder’s card. The merchant’s acquirer pays it and recovers it through the merchant service charge.
Why is card acceptance more expensive for gambling operators?
Gambling is classified as a high-risk merchant category, which raises acquirer pricing and reserve requirements on top of the underlying interchange and scheme fees.
Do open-banking payments carry interchange?
No. A bank-to-bank transfer initiated through open banking bypasses the card schemes, so there is no interchange and no card chargeback exposure.