Interchange Fees, Explained for Dealers

Every time a customer pays with a card, a small piece of that sale goes to the bank that issued the card, before your processor ever sees a cut. That piece is interchange. It is not a fee your processor invents; it is set by the card networks, Visa and Mastercard, and published in rate schedules that apply to every merchant that accepts their cards. Interchange is also the largest single component of what card acceptance costs a dealership, bigger than the network's own assessments and bigger than your processor's markup.

• Interchange

  Paid straight to the customer's card-issuing bank. It is the largest layer, and it is set by the networks, not by your processor.

• Assessments

  A small, non-negotiable fee paid to the card network itself, Visa or Mastercard. Like interchange, it is not something your processor sets or negotiates.

• Processor Markup

  The fee your processor adds on top of interchange and assessments. This is the only one of the three layers that is ever negotiable.

• Effective Rate

  Interchange, assessments, and processor markup added together. That total is the effective rate, what a dealership actually pays to accept a card.

Card type is the biggest driver. A basic card or a debit card runs at a low rate. A rewards card, a premium travel card, or a corporate card runs higher, because the issuing bank is funding points, perks, and purchase protections that get priced into a higher interchange rate.

How the card is run matters too. A card that is present and read at the terminal, swiped, dipped, or tapped, carries a lower interchange rate than a card that is not present, one that is keyed in, taken over the phone, or entered online. Card-not-present transactions carry more fraud risk for the issuing bank, and interchange prices that risk in.

Merchant category plays a role as well. The networks assign every business a category code, and the published rate for the same card can differ from one category to the next. A franchise dealership sits across the auto-dealer, service, and parts categories, and its interchange is read from the schedule rows those categories point to.

Published credit interchange rates commonly run from roughly 1.2 percent to roughly 3.3 percent of the sale, depending on the card and how it is run. Those figures come from the card networks' own published schedules, not from any single processor; they are the range interchange itself falls within before any processor markup is added.

The Durbin Amendment, enforced through the Federal Reserve's Regulation II, caps debit card interchange for large banks, those with more than 10 billion dollars in assets, at 21 cents plus 0.05 percent of the sale, plus up to a penny more where the issuer qualifies for a fraud-prevention adjustment. On a small ticket that works out to around 22 to 24 cents. The 0.05 percent piece scales with the sale, so on a dealership-sized ticket the dollar figure is larger, yet it stays a tiny fraction of the amount, far below what the same sale would cost on a credit card.

That cap only applies to large-bank debit cards. Debit cards from smaller, exempt banks and credit unions are not capped, and neither is any credit card, regardless of card type. That gap, a hard federal ceiling on large-bank debit against an uncapped market for everything else, is the reason debit interchange runs so much cheaper than credit interchange.

A dealership's average ticket makes interchange a bigger number than it looks on paper. A vehicle sale, a finance and insurance (F&I) product, or a large service repair order all carry high dollar amounts, so even a modest interchange rate turns into real dollars on every transaction that runs on a credit card.

Interchange is also the one layer a dealer cannot negotiate away. It is set by the card networks and paid straight to the customer's issuing bank, no matter who processes the transaction. The only layer that is ever negotiable is the processor markup on top of it.

This is exactly the cost a compliant, disclosed credit card surcharge is built to offset. A surcharge lets a dealership pass through the credit card interchange it is stuck paying, while regulated debit stays cheap to accept because its interchange is capped under the Durbin Amendment. See how the mechanics work on the surcharge program page and the how it works page, or see flat pricing on the pricing page. Both Visa and Mastercard publish their own surcharge rules, and every state sets its own law on top of them; check yours on our surcharge laws by state guide.

One distinction is worth being precise about. The roughly 3 percent figure at the top of the credit interchange range is a cost the card-issuing bank charges, built into the price of every sale. The 3 percent surcharge a customer sees at checkout is a completely different number: a separate, disclosed line the customer pays, not the bank. They happen to land near the same figure, but they are not the same charge.