What Is an Interchange Fee? How It Differs From the Merchant Discount Rate (MDR)

An interchange fee is the fee a merchant's acquiring bank pays to a customer's card-issuing bank on each credit or debit card payment. The card network sets the rate and the issuer keeps it, while the merchant bears the cost because the acquirer passes it on in its card fee. In the US it's usually the largest part of that fee, while in capped markets such as the UK and EU it's often the smaller part.

Most businesses never see interchange as its own line. They see one percentage, the merchant discount rate (MDR), which bundles interchange with the card network's own fees and the acquirer's markup. Only the markup is yours to negotiate, so you can't tell whether a card quote is fair until you know how much of it is interchange.

Splitting one card sale into those three parts shows where each cent goes. From there, you'll see what moves the rate, the caps in six markets, why cards issued abroad, including in India, can cost more, and which parts of a pricing quote you can push down.

An interchange fee comes out of every card payment before the money reaches the merchant. When a customer pays, the issuer sends the funds to the merchant's acquirer (the bank or processor that accepts cards for the business, often through a payment gateway) and keeps the interchange as its share.

• Who sets it - Card networks such as Visa and Mastercard publish the rates, and regulators cap them for consumer cards in markets like the UK, the EU and Australia.
• Who receives it - The issuer keeps the interchange, while the card network earns its own money through separate scheme fees that the acquirer also pays on each payment.
• Why it exists - It pays the issuer for the cost and risk of the payment, including fraud losses and the credit it extends, and it helps fund the rewards on premium cards.

You'll also hear interchange called swipe fees, and Visa's formal name for it is the interchange reimbursement fee. Strictly, the business pays its own bank a merchant discount, and the bank pays interchange out of that, which is where the merchant discount rate comes in.

The merchant discount rate (MDR) is the total charge the acquirer takes from the merchant on each card payment, usually deducted before the money is settled to you. Interchange is the part carved out of it and passed to the issuer, while the rest is split between the card network and the acquirer.

So the interchange vs MDR question has a short answer: interchange is one part and MDR is the whole. In Europe the same total is usually called the merchant service charge, and some providers call it the discount rate. Each name covers the same three layers.

Which part of your card fee is interchange and which is MDR

A card fee has three layers, each going to a different party, and only the acquirer's layer is agreed with you.

Worked example of USD and GBP card sales split into three parts

This interchange fee example prices the same card sale in two markets. The USD 100 sale is an online payment on a US Visa consumer credit card at the lowest card tier of Visa's standard online consumer credit rate (1.89% + USD 0.10, effective 24 Oct 2026). The GBP 100 sale uses the UK cap of 0.3% on consumer credit cards.

Only the interchange lines are published figures. The scheme fee and acquirer markup are illustrative round numbers, chosen to show the shape of the fee rather than any provider's real price.

Here interchange is about 73% of the US fee and about 29% of the UK one. Where interchange is capped low, the markup and scheme fees make up more of what you pay, so they're the lines worth checking first on a UK or EU quote.

The interchange rate on a single payment is one line in the network's schedule, and five things decide which line applies to you:

• Card type - Credit card interchange fees run higher than debit interchange, and rewards, corporate and premium cards cost more again, because the issuer funds the rewards and carries more risk.
• Card-present or card-not-present - A card tapped or inserted in a shop usually carries a lower rate than one typed into a website, since online payments carry more fraud risk for the issuer.
• Merchant category code - Your acquirer gives your business a four-digit merchant category code (MCC) that describes what you sell, and some categories have their own rates.
• Where the card was issued - A card issued in another country falls under the network's international category, which has separate rates and usually sits outside the domestic caps.
• Regulation - In the US, the Durbin Amendment caps debit rates only for issuers with over USD 10 billion in assets, while UK and EU caps cover most consumer cards issued and used there.

Most of these are settled once you've chosen how and where you sell, so the merchant category code is the one to check with your acquirer.

Interchange rates are set by each card network, but regulators cap them for consumer cards in the UK, the EU and Australia, and the US caps debit cards issued by large banks. Canada relies on voluntary cuts, and Singapore leaves rates to the networks and to competition between payment methods. A typical interchange fee on a US consumer credit card sits around 2% online, while capped UK and EU consumer cards pay 0.3% or less. Below are the current interchange fees in each market on 11 Nov 2026, with Visa interchange rates standing in for the US.

If many of your customers pay with cards issued abroad, the caps matter less than they look, because most of them apply only when the card and the merchant are in the same market.

International interchange rates apply when the card's issuer is in a different country or region from the merchant's acquirer. Visa and Mastercard set these rates separately from their domestic ones, and most national caps don't reach them, so the same purchase can cost you more or less depending on where the card was issued.

The category follows the issuer's location, not the customer's address or the currency on your price. A customer living in London who pays with a card from an Indian bank still puts that sale on the international rate.

Foreign-issued cards and why they can cost more to accept

A card issued abroad can cost more to accept, even where its interchange rate is lower, because of gaps in the caps, extra network fees and acquirer charges:

• No cap on foreign cards - In the UK and Australia today, domestic consumer cards are capped at 0.3% or less, and in the EU the cap covers cards issued inside the EEA, so cards from elsewhere fall outside these limits.
• Network cross-border fees - Visa and Mastercard charge acquirers separate cross-border assessment fees on these payments, on top of the scheme fees they charge on domestic cards.
• Acquirer charges for international cards - Some acquirers price cards issued abroad on a separate, higher line, so check the international line on any quote you're given.

Currency conversion is a separate cost again: if the card is in another currency, the conversion and any foreign exchange markup often fall on the cardholder through their issuer, unless your provider converts the payment for you.

Interchange charges are only one of several costs that can apply when money crosses a border. If you want the full set, from network fees to bank charges, the Xflow guide to cross border fees walks you through each one and who usually pays it.

Cards issued in India and what changes for a merchant abroad

An India-issued Visa or Mastercard card used at a merchant abroad prices under the network's international category, so your domestic caps don't apply. India's own card and Unified Payments Interface (UPI) charge rules, including Reserve Bank of India (RBI) caps and charge-free RuPay debit, are written for merchants in India.

Ask your acquirer to show international-card interchange fees, network fees and any extra charge as separate lines, so you can compare quotes on equal terms. If you'd rather not deal with interchange at all, a merchant of record acts as the legal seller and handles tax and disputes, usually for a higher fee than a processor charges.

Acquirers price the merchant discount rate in two main ways, and the model you're on decides whether you can see your interchange cost at all. The same card mix can look cheap on one quote and expensive on another until you know which model each one uses.

Blended pricing compared with cost-plus on the same card quote

Interchange-plus pricing (also written interchange++, IC++ or cost-plus) passes interchange and scheme fees through at cost and adds the acquirer's markup as its own line. Blended pricing, often sold as a flat rate, charges one percentage across cards, so the acquirer gains when a card's interchange is low and absorbs the difference when it's high.

Reprice the worked example at an illustrative blended rate of 2.5%. The US sale costs USD 2.50 against USD 2.74 on interchange-plus, so blended looks cheaper there. The UK sale costs GBP 2.50 against GBP 1.05, because the UK cap keeps interchange at GBP 0.30 and a flat rate hides that saving.

Your effective processing rate is your total card fees divided by your total card sales over a period, such as a month. In the USD 100 example it's 2.74%, and tracking it monthly gives you one number to compare across quotes on different models.

What is fixed and what you can change to lower interchange cost

• Fixed for you - Interchange and network assessment fees are set by the networks for every acquirer, and capped by regulators in some markets, so a single business can't negotiate them down.
• Negotiable - The acquirer markup, any fixed fee per payment and the pricing model itself are agreed between you and your acquirer, so they're where a better quote comes from.
• How you take payments - Card-present payments usually carry lower interchange than online ones, so in-person sales are worth taking on a card terminal rather than keying card details in by hand.
• Your category and programmes - Check that your merchant category code matches what you sell, and ask whether you qualify for a small-business programme such as Canada's voluntary interchange cuts.

Xflow helps businesses outside India collect from Indian customers through Indian cards, RuPay and netbanking, and settles the money to them abroad. It suits businesses that want Indian payment methods without setting up a local entity. See how Xflow can help you accept payments from India.

An interchange fee is the issuer's share of every card payment, set by the network and capped in some markets. It sits inside your merchant discount rate with scheme fees and the acquirer markup, and only the markup is yours to negotiate. Ask for interchange-plus pricing and separate international lines, and track your effective processing rate each month.