Interchange vs. Markup: What Is Actually Negotiable

Every card processing fee you pay splits into two parts. One part is fixed by the card networks and identical for every processor in the country. The other part is set by your processor and is entirely negotiable. Merchants who understand the split negotiate better deals. Merchants who do not tend to pay for the confusion.

What interchange is

Interchange is the fee paid to the bank that issued your customer's card. When someone pays with a Chase-issued Visa, a portion of your processing cost flows back to Chase. It compensates issuing banks for fraud risk, funding costs, and — for rewards cards — the points and cash back your customer earns.

Visa and Mastercard publish interchange schedules, and they are extensive: hundreds of categories varying by card type, merchant industry, transaction size, and how the card was accepted. A chip-read debit card at a grocery store sits in a different category than a keyed-in corporate card at an online retailer, at a very different cost.

On top of interchange sit assessments — smaller fees the card networks themselves charge for use of their rails.

Who sets it, and what is negotiable

The card networks set interchange. Not your processor, not your bank, not Paymerica. No processor gets preferential interchange, and any salesperson implying otherwise is misleading you.

What is negotiable is markup: everything your processor adds on top. Per-transaction markup, monthly fees, statement fees, PCI program fees, gateway fees, batch fees. This is the processor's revenue, and it is the entire negotiating surface. When we analyze a statement, the first task is separating interchange from markup — because a "high rate" driven by card mix is a different problem than a high rate driven by processor margin.

The three pricing models

How markup is presented matters as much as its size.

• Tiered pricing. Transactions are sorted into buckets — qualified, mid-qualified, non-qualified — at rates the processor sets. The advertised rate applies to the cheapest bucket; the processor decides what falls where. This model is opaque by design, and downgrades into expensive tiers are where margins hide.
• Interchange-plus. You pay actual interchange, passed through at cost, plus a disclosed markup — for example, interchange plus a fixed percentage and a per-item fee. Every statement shows exactly what went to the networks and what went to the processor. This is the transparent model, and the one we recommend for most established merchants.
• Flat rate. One rate for everything, popularized by the big aggregators. Simple, predictable, and usually expensive at volume: the flat rate must be set high enough to cover the costliest cards, so you overpay on every cheap debit transaction.

What to do with this

Pull a recent statement and ask one question: can you tell what portion of your fees was interchange and what portion was markup? If the answer is no, that opacity is costing you something — you just cannot see how much.

We do this analysis for merchants as a matter of course, and we re-run it quarterly so the split stays visible over time. If you would like your statement broken down line by line, reach out through the contact form.