What is an Interchange Fee ?

Interchange fee is a term used in the payment card industry to describe a fee paid between banks for the acceptance of card-based transactions. Usually for sales/services transactions it is a fee that a merchant's bank (the "acquiring bank") pays a customer's bank (the "issuing bank"); and for cash transactions the interchange fee is paid from the issuer to acquirer, often called reverse interchange.

In a credit card or debit card transaction, the card-issuing bank in a payment transaction deducts the interchange fee from the amount it pays the acquiring bank that handles a credit or debit card transaction for a merchant. The acquiring bank then pays the merchant the amount of the transaction minus both the interchange fee and an additional, usually smaller, fee for the acquiring bank or independent sales organization (ISO), which is often referred to as a discount rate, an add-on rate.