Interchange Rates Explained: What Businesses Need to Know

Interchange is the single largest component of credit card processing costs, yet it remains one of the most misunderstood concepts in payments. If you process $500,000 per year in credit card sales, a difference of just 0.3% in your effective interchange rate translates to $1,500 annually. Understanding how interchange rates work — and how to optimize them — can meaningfully reduce your cost of accepting payments.

What Is Interchange?

Interchange is a fee paid by the merchant's bank (the acquirer) to the cardholder's bank (the issuer) every time a credit or debit card transaction is processed. Think of it as the issuer's compensation for the service they provide: extending credit to the cardholder, absorbing fraud risk, and funding the rewards programs that make premium cards attractive.

From your perspective as a merchant, interchange is not paid directly — it is deducted from the transaction amount before funds reach your bank account. But it represents the largest slice of your processing costs, which is why understanding it is critical. For a complete picture of all the fees involved, see our guide to understanding credit card fees.

Who Sets Interchange Rates?

Visa and Mastercard set interchange rates — not your processor, not TIB Finance. This is a common misconception. The card networks publish their interchange rate tables, typically twice a year (April and October), and all acquirers and processors must pass these rates through to merchants.

What your processor can control is the markup they charge on top of interchange. This is why choosing a transparent processor with an interchange-plus pricing model is so important — you want to ensure you are paying actual interchange plus a clear, fixed markup, rather than a blended rate that may be higher than it needs to be.

Factors That Determine Your Interchange Rate

There is no single interchange rate. Visa Canada and Mastercard Canada each publish hundreds of rate categories. The rate applied to any given transaction depends on several factors:

Card Type

This is the most significant factor. Different card products carry vastly different interchange rates:

• Basic consumer debit (Visa Debit, Debit Mastercard): Very low rates, often 0.05%–0.15% in Canada following regulatory pressure.
• Standard consumer credit: Moderate rates, typically 1.0%–1.5%.
• Premium rewards cards (Visa Infinite, World Elite Mastercard): Higher rates, often 1.5%–2.5%, because the issuer must fund lucrative travel rewards programs.
• Corporate / business cards: Can range from 1.5% to over 2.5%, though Level 2 and Level 3 data submission can significantly reduce these rates.

Transaction Method

How the transaction is captured affects interchange. Card-present transactions (chip + PIN, contactless) are considered lower risk than card-not-present transactions because physical authentication is performed. Card-not-present transactions (e-commerce, phone orders) carry a surcharge of approximately 0.3%–0.5% above the equivalent card-present rate.

Merchant Category Code (MCC)

Every merchant is assigned an MCC that categorizes the type of business. Some categories receive special reduced interchange rates. For example:

• Utilities and government agencies: Often 0%–0.65%
• Supermarkets: Reduced rates (approximately 0.7%–1.2%)
• Non-profit organizations: Reduced rates
• Fuel merchants: Special per-transaction rates

Data Quality and Compliance

Submitting complete, accurate transaction data improves your interchange qualification. For B2B transactions, this means Level 2 data (customer code, tax amount, invoice number) and Level 3 data (line-item detail). Transactions that qualify for Level 2 or Level 3 data categories can save 0.3%–1.0% in interchange compared to standard rates.

Interchange Rates in Canada

Canada has gone through significant changes in interchange rate policy in recent years. In 2023, the Government of Canada reached voluntary commitments with Visa and Mastercard to reduce consumer credit card interchange rates for small and medium-sized businesses:

• Visa: Average consumer credit card interchange rate reduced to 0.95% for eligible small businesses (annual card revenue under $300,000 on Visa cards).
• Mastercard: Similar commitment to reduce average rates to 0.95% for eligible small businesses.

However, these reduced rates apply specifically to consumer credit cards at qualifying small businesses. Premium rewards cards, corporate cards, and large-volume businesses may not qualify. The rates also do not apply to American Express, which operates under a separate model.

It is also worth noting that the 0.95% average masks significant variation — some card types at some merchants will pay less, while others pay more. The average is not a guarantee of what you will pay on every transaction.

Visa and Mastercard Rate Categories

Both networks use tiered rate structures with named categories. While the full rate tables contain hundreds of categories, the most common ones Canadian businesses encounter include:

Tips to Qualify for Lower Interchange Rates

While you cannot control which card a customer uses, you can optimize how you process transactions to minimize your interchange cost:

Why Interchange-Plus Pricing Matters

The only way to truly benefit from these optimization tips is to be on an interchange-plus pricing plan. With flat-rate or tiered pricing, your processor keeps any savings you generate by qualifying for lower interchange categories. With IC+ pricing, when you qualify for a lower interchange rate, you pay that lower rate — and your costs go down directly.

TIB Finance offers transparent interchange-plus pricing, ensuring that every optimization you make translates directly into savings. Learn how this compares to flat-rate pricing in our guide on flat-rate vs interchange-plus pricing, and discover additional ways to cut costs in our article on reducing credit card processing costs.