A card transaction costs the merchant a percentage of the sale. That deduction is divided between three parties, and the largest share goes to the bank that issued the card.
Three parties take a portion of every sale
The merchant's acquirer keeps a margin for processing and settlement. The network charges a smaller fee for routing and scheme access.
The remainder, interchange, passes from the acquirer to the issuing bank. It is typically the largest of the three components.
Merchants often see only a single blended figure, which conceals the split and makes the underlying cost drivers difficult to identify. Interchange-plus pricing separates the components explicitly, which is why larger merchants insist on it.
Interchange funds the issuer's economics
The issuing bank carries the credit risk on the balance, funds the interest-free period between purchase and statement, and pays for fraud losses on its cards.
It also funds rewards programmes, which is the direct reason cards offering generous benefits carry higher interchange rates.
A merchant accepting a premium rewards card is therefore contributing to the benefits that card provides, even when the customer pays the balance in full.
Rates vary by card type and transaction context
Networks publish extensive rate tables. Commercial and premium consumer cards attract higher interchange than basic debit products.
Context matters too, with transactions where the card is not physically present attracting higher rates because fraud risk is greater.
Meeting data quality requirements can move a transaction into a lower category, which is why processors emphasise passing complete information with each authorisation. Address verification and authentication data both feed into that classification.
Regulation has capped it in several markets
Because merchants cannot realistically refuse widely held cards, interchange is not disciplined by ordinary competition, and several jurisdictions have imposed limits.
Where caps applied, issuer revenue fell and rewards programmes were reduced, while the effect on retail prices proved difficult to observe.
The debate concerns who ultimately benefits from a reduction, and the evidence has not settled it in either direction.
Costs reach customers indirectly
Merchants generally cannot price differently by card type, so acceptance costs are absorbed into prices paid by everyone including cash customers.
The effect is a transfer from customers using low-cost payment methods toward those holding cards with rich rewards.
Surcharging changes this where it is permitted, making the cost visible at the point of sale rather than distributing it across all prices. Network rules and local law both constrain whether a merchant may do so, and the permitted amount is usually capped at the acceptance cost itself.