What are interchange fees, how they work, and what they cost

No. They are set by the card networks (like Visa and Mastercard) and are charged by the customer's bank (the issuer). These rates are non-negotiable and change periodically based on market regulations and network updates.

However, businesses can optimize their costs by using local acquiring to benefit from regional fee incentives or by implementing security tools like Address Verification Service (AVS) that can trigger lower interchange categories.

Businesses pay interchange fees as the largest component of their overall credit card processing costs. 

While the customer’s bank receives the fee to cover the risks and costs of providing credit, the business is responsible for the payment. This cost is typically bundled into a business’s processing fees, alongside card scheme fees (charged by networks) and acquiring fees (charged by the merchant's bank).

Online payments are more expensive because they carry a higher risk of fraud and chargebacks. This leads banks to set higher interchange rates for "card-not-present" transactions. 

Online businesses face a higher risk of "friendly fraud". Friendly fraud is when customers claim a purchase was unauthorized or never arrived and accounts for 75% of all chargebacks. 

Because banks can’t physically verify the card or the cardholder's signature during an online checkout, they charge a premium to offset the increased likelihood of disputes and security risks.

No. Interchange fees vary across regions, card types, and local regulations. Some regions have strict caps on interchange fees to protect businesses, while others don’t. 

Costs are generally much lower when transactions are processed through a local acquirer within the same region. "Cross-border" transactions, where the customer’s bank is in a different region than the business, are typically subject to significantly higher interchange rates.