Interchange & Pricing

Accepting a card costs money, and how much is decided by rules most engineers never see: tables of interchange categories, a federal cap on debit, data requirements for business cards, and a markup set in a contract. For a merchant it's a cost on every sale. For a software platform that offers payments, the gap between what acceptance costs and what it charges is the business model. Either way, the cost of every transaction is computed somewhere, and a payments system that doesn't record it can't tell anyone whether a merchant is profitable, why last month's fees jumped, or what a pricing change will do.

How Card Payments Work showed where in the flow the money moves. This chapter is about how much of it each party keeps.

Three Layers of Cost#

What the merchant pays, usually quoted as one merchant discount rate, is three different things stacked together:

Layer	Paid to	Set by	Negotiable?
Interchange	The issuer	The network's published tables, or law for regulated debit	No
Network fees	Visa, Mastercard and the others	Each network's fee schedule, billed to the acquirer	No
Markup	The acquirer, processor, and anyone reselling them	The merchant's contract	Yes

Interchange is the largest layer on most consumer credit transactions, and it isn't the acquirer's to give away: the network deducts it at settlement. Network fees are smaller and arrive as a long list of line items on the acquirer's bill. Only the markup is a price anyone in the merchant's chain actually sets, which is why every pricing model below is really a statement about how the first two layers are passed through.

What Sets Interchange#

Visa and Mastercard publish their US interchange tables, and Visa's current schedule took effect on October 24, 2026. A transaction's rate depends on which category it qualifies for, and the category depends on:

• Card type. Regulated debit, exempt debit, prepaid, consumer credit (with higher rates for premium rewards products), and commercial cards each have their own tables.
• Channel. Card-present beats card-not-present, and a key-entered card-present payment is priced closer to online. Visa's exempt debit table charges 0.80% + $0.15 for card-present retail and 1.65% + $0.15 for basic e-commerce.
• Merchant category. Some industries get their own rates, often flat: Visa prices exempt debit for utility bill payment at $0.65, and for recurring utility payments at $0.45.
• Data and timing. Each category has qualification rules: authorization and settlement within time limits, matching amounts, address verification, and for business cards, line-item data. Miss one and the transaction falls to a costlier category.
• Merchant size. Visa's credit tables have performance tiers for the largest retail and supermarket merchants, with volume and dispute-ratio thresholds updated on their own schedule (the current ones took effect April 18, 2026).

The tables change. Visa publishes revisions with effective dates, so interchange belongs in effective-dated reference data, never in constants.

Regulated Debit

In the US, debit interchange from large issuers is capped by law. The Durbin Amendment directed the Federal Reserve to set the cap, and Regulation II has held it at 21 cents plus 5 basis points of the transaction, plus a 1-cent fraud-prevention adjustment for issuers that meet the Fed's fraud standards. It applies to issuers that, with their affiliates, have $10 billion or more in assets; smaller issuers are exempt and earn the network's ordinary debit rates, which is why the same $100 online purchase can carry $0.27 or $1.80 of interchange depending on which bank issued the card.

The cap itself is unsettled. The Fed proposed lowering it in November 2023 to 14.4 cents, 4.0 basis points and a 1.3-cent fraud adjustment, recalculated every two years; the Federal Register's Regulation II filings through January 2026 show no final rule. Separately, on August 6, 2025, a federal court in North Dakota (Corner Post v. Board of Governors) held Regulation II contrary to the statute and vacated it, then stayed its own ruling pending appeal, and the Fed appealed to the Eighth Circuit on October 6, 2025. Until those resolve, the 2011 numbers still apply, and a pricing system that hard-codes them is one ruling away from wrong.

Regulation II also governs routing: every debit card must be able to run over at least two unaffiliated networks, and since July 1, 2023, that includes card-not-present payments. The merchant, not the issuer, chooses among them. That choice is money, and Processor Routing covers how to make it.

Downgrades

A transaction that misses its category's requirements doesn't fail; it downgrades to a costlier one, silently, and the merchant finds out on the statement. On Visa's exempt debit table, the same online purchase costs 1.60% + $0.15 if it qualifies for the preferred e-commerce rate, 1.75% + $0.20 at the electronic fallback (EIRF), and 1.90% + $0.25 at the standard rate.

Most downgrades are engineering failures:

• Late capture or settlement, past the category's time limit, often from a batch job that runs late or a capture queue that backs up.
• Amounts that don't match between authorization and settlement, outside what the category allows.
• Missing data: address verification not requested, or business-card fields not sent.
• Wrong indicators: a recurring payment flagged as one-off, an online payment flagged as card-present.

The fix is to treat the qualification rate as a production metric: compute it from the processor's interchange detail, by merchant and by category, and alert when it moves.

Level 2 and Level 3 Data#

Commercial cards carry the highest interchange, and they're also where data earns the most back. Level 2 data adds the tax amount, a customer reference such as a purchase order number, and the merchant's tax ID. Level 3 adds line items: product codes, descriptions, quantities, unit prices, freight and duty. Business card issuers want it because their customers reconcile purchases against it, and the networks reward merchants who send it.

Visa reorganized this in 2025 as its Commercial Enhanced Data Program. Its current schedule prices the top commercial category, "Commercial Product 3", at 1.75% + $0.10, against 2.70% + $0.10 for an ordinary card-not-present commercial payment and 2.95% + $0.10 when a transaction doesn't qualify at all. Processors describe the program's terms: from October 17, 2025, the line items must add up exactly to the authorized amount (quantity times unit price, plus tax and shipping), Visa charges a 5-basis-point participation fee on enhanced-data volume, and Level 2 rates were retired in April 2026 except for fleet fuel. Mastercard runs its own enhanced-data programs with their own tables.

For a B2B platform this is real money, and almost all of it is engineering: capturing line items at invoice time, carrying them through to settlement, and validating the arithmetic before the processor does.

Pricing Models#

How the merchant is charged decides who carries the variability of interchange.

Model	How it works	Who carries interchange risk	My view
Interchange-plus	Interchange and network fees passed through at cost, plus a fixed markup	The merchant	The honest default for any merchant big enough to read a statement; the markup is visible and comparable
Blended (flat)	One rate for everything, like Stripe's published 2.9% + 30¢ for US domestic cards	The provider	Right for small merchants who value predictability; the provider earns more on cheap debit and less on premium credit
Tiered	Transactions sorted into "qualified", "mid-qualified" and "non-qualified" buckets by the provider's own rules	The merchant, opaquely	Avoid: the provider decides which bucket you're in, and the buckets aren't the networks' categories
Subscription	A monthly fee, with interchange and network fees at cost	The merchant	Good for high-volume merchants; the provider's revenue no longer scales with the merchant's

Large providers usually offer more than one: Stripe lists interchange-plus among its custom pricing options alongside the flat rate. A platform should be able to represent every model, because it will end up selling different ones to different merchants.

How a Platform Earns#

A software company that embeds payments earns on the spread. An ISO or referral partner usually receives residuals: a share of the markup on its merchants' volume, paid monthly from the processor's reports. A payment facilitator, which signs merchants as its own sub-merchants, sets their price itself and keeps the difference between that and its own cost. Either way, revenue is a function of interchange the platform doesn't control, so its margin per merchant swings with that merchant's card mix: a flat-rate merchant whose customers move from debit to rewards credit can go from profitable to loss-making without changing anything. Payments for Software Platforms covers the platform model; the point here is that the platform can't see its margin without the cost data below.

The Engineering#

• Store the cost of every transaction, by layer. From the processor's interchange and fee detail: the interchange category and amount, each network fee, and the markup, linked to the payment they belong to.
• Money in minor units, rates as exact decimals. Basis points or decimal strings, never floats, with the rounding rule written down (Money & Amounts). A fraction of a cent per transaction is a reconciliation break at scale.
• Rate tables as effective-dated data. Interchange schedules, fee schedules and each merchant's contracted price all change on known dates, and a transaction is priced by the version in force when it happened.
• Estimate at authorization, true up at settlement. Show the expected cost when the payment is made, then replace the estimate with the actual from the processor's files, and report on the difference.
• Reconcile statements. Each month, the processor's statement should equal the sum of the per-transaction costs you recorded. When it doesn't, the difference is either a fee you didn't know about or a transaction you didn't record.
• Watch qualification and margin. Downgrade rate by merchant and category, and margin by merchant, as dashboards someone owns.

References#

Specifications

• Visa: Visa USA Interchange Reimbursement Fees (PDF), the debit, prepaid and commercial rates and performance thresholds cited here, effective October 24, 2026
• Cornell LII: 12 CFR § 235.3, Regulation II's 21-cent and 5-basis-point standard
• Cornell LII: 12 CFR § 235.4, the 1-cent fraud-prevention adjustment
• Cornell LII: 12 CFR § 235.5, the exemption for issuers under $10 billion in assets

Reference

• Federal Reserve: Regulation II, the interchange standard and the two-network routing requirement
• Federal Register: Debit Card Interchange Fees and Routing (2023 proposal), the proposed 14.4-cent, 4.0-basis-point and 1.3-cent components
• Federal Register: Debit Card Interchange Fees and Routing (2022 rule), card-not-present routing over two unaffiliated networks from July 1, 2023
• Cooley: District Court Vacates Regulation II's Debit Card Interchange Fee Standard, the August 6, 2025 ruling and its stay pending appeal
• ABA Banking Journal: Federal Reserve appeals Reg II interchange fee ruling, the appeal to the Eighth Circuit

In practice

• Rainforest: Visa Commercial Enhanced Data Program requirements, a processor's summary of the October 17, 2025 Product 3 date, arithmetic validation, the 5-basis-point fee and the Level 2 sunset
• Stripe: Pricing, a published blended rate and interchange-plus as a custom option