Why Interchange Fees Matter and How Businesses Can Reduce Their Payment Costs
Every time a customer swipes a credit card, interchange fees come into play. These fees, set by card networks like Visa and Mastercard, are a major component of payment processing costs. While interchange fees are unavoidable, businesses often end up paying more than necessary due to poor processor agreements, hidden markups, or inefficient transaction handling.
Understanding interchange fees and how they work is the key to reducing costs and optimizing payment operations. In this blog, we’ll break down interchange fees, their impact on businesses, and strategies for lowering them.
1. What Are Interchange Fees?
Interchange fees are transaction fees that merchants must pay whenever they accept credit or debit card payments. These fees go to the card-issuing bank and vary based on several factors, including:
Card Type: Rewards and corporate cards typically have higher interchange rates.
Transaction Method: In-person transactions usually have lower fees than online transactions due to lower fraud risk.
Industry and MCC (Merchant Category Code): Different industries have different rates based on risk and volume.
Transaction Size: Some fees are a percentage of the transaction, while others include fixed per-transaction costs.
Interchange fees are not negotiable, but how businesses handle their payments can significantly impact their overall costs.
2. How Interchange Fees Affect Business Costs
Interchange fees often make up the largest portion of a business’s credit card processing expenses. A small percentage difference can translate into thousands of dollars in extra costs per year.
Common issues that increase interchange fees:
✅ Not optimizing how transactions are processed
✅ Using the wrong Merchant Category Code (MCC)
✅ Lack of Level 2 and Level 3 data submission for B2B transactions
✅ Poor processor agreements that include hidden markups
Businesses that don’t proactively manage their processing fees end up overpaying, reducing profit margins without realizing it.
3. How Businesses Can Reduce Interchange Fees
3.1 Choose the Right Payment Processor
Some payment processors add extra markups on top of interchange fees, leading to inflated costs. Working with a transparent processor or having a third-party consultant review your agreement can help uncover hidden fees.
3.2 Optimize Payment Methods
Encourage debit card payments, which have lower interchange fees than credit cards.
Implement contactless and chip transactions to reduce fraud risk and qualify for lower fees.
3.3 Use Level 2 and Level 3 Processing for B2B Transactions
Businesses that process a high volume of B2B payments can lower interchange fees by providing additional transaction data, such as:
Tax amounts
Customer codes
Invoice numbers
Processors pass this data to card networks, qualifying transactions for lower interchange rates.
3.4 Ensure Proper MCC Classification
Your Merchant Category Code (MCC) affects your interchange rates. Some businesses are misclassified and end up paying more than necessary. Reviewing and updating your MCC can optimize processing costs.
3.5 Reduce Chargebacks and Fraud
Chargebacks increase a business’s overall processing costs and can lead to higher interchange fees if a company is flagged as high-risk. Implementing fraud prevention tools, chargeback management, and PCI compliance practices can help maintain lower rates.
3.6 Work With a Payments Consultant
A payments consultant (like PlutosPay) can analyze processing fees, identify unnecessary costs, and negotiate better agreements with processors. Businesses that regularly audit their processing statements can uncover savings opportunities they might otherwise miss.
4. How PlutosPay Helps Businesses Lower Payment Processing Costs
At PlutosPay, we specialize in uncovering unnecessary fees, optimizing payment setups, and managing processor relationships. Here’s how we help businesses reduce interchange and processing costs:
✔ Processor Agreement Review – Identify hidden fees and negotiate better pricing.
✔ MCC Optimization – Ensure your business is classified correctly for the lowest possible rates.
✔ Chargeback and Fraud Management – Keep risk levels low to maintain favorable processing conditions.
✔ Statement Audits – Analyze processing costs monthly to identify and eliminate inefficiencies.
✔ Level 2 & Level 3 Data Submission – Help B2B businesses qualify for lower interchange rates.
By implementing these strategies, businesses can save thousands annually while ensuring seamless payment operations.
5. Key Takeaways
🔹 Interchange fees are a major component of payment processing costs and vary by card type, industry, and transaction method.
🔹 Many businesses overpay due to poor processor agreements, incorrect MCC classifications, and inefficient transaction handling.
🔹 Optimizing payment methods, implementing fraud prevention, and working with a consultant can significantly reduce interchange costs.
Want to lower your processing costs? Let’s talk. PlutosPay provides expert consulting to help businesses streamline payments and maximize savings.