Who Are You Really Paying All of Your Processing Fees To?

Merchant Processing Fees- Who Are You Really Paying All of Your Processing Fees To?

Have you ever wondered where all those processing fees go when you accept credit or debit card payments? The world of merchant processing can seem like a complex web of transactions and fees, but understanding the basics can shed light on who exactly benefits from these fees. Let’s dive into the heart of it: the interchange.

What is Interchange?

Interchange is the fee paid by a merchant’s bank (acquirer) to the cardholder’s bank (issuer) for each credit or debit card transaction. It’s essentially the wholesale rate of processing card payments. This fee is set by the card networks like Visa, Mastercard, and others, and it’s non-negotiable for merchants.

How Does Interchange Work?

When a customer swipes their card at your business, several parties are involved:

  1. Cardholder: The customer making the purchase.
  2. Merchant: Your business, selling goods or services.
  3. Acquirer (Merchant’s Bank): Your bank that processes card transactions.
  4. Issuer (Cardholder’s Bank): The bank that issued the customer’s credit or debit card.
  5. Card Network: The network (like Visa or Mastercard) facilitating the transaction.

The interchange fee is a percentage of the transaction amount plus a flat fee (e.g., $0.10 per transaction). This fee varies based on factors like card type (debit, credit), industry, transaction method (online, in-store), and risk associated with the transaction.

Who Makes the Money?

Now, here’s the kicker. The bulk of these interchange fees goes straight to the cardholder’s bank (issuer), not to the card networks or your bank. Why? Because this fee compensates the issuer for the risk and cost associated with providing credit to the cardholder.

So, when you pay a processing fee, you’re essentially covering:

  • Interchange Fee (Issuer’s Share): The largest chunk of your fee, going to the cardholder’s bank.
  • Assessment Fee (Card Network’s Share): A small fee paid to the card network (Visa, Mastercard) for facilitating the transaction.
  • Markup (Acquirer’s Share): The part that your bank (acquirer) keeps for processing the transaction and managing associated risks.

The Impact on Merchants

Understanding this breakdown is crucial for merchants because it clarifies why processing fees are structured the way they are. While you might perceive that you’re paying a lot in fees, a significant portion is actually passed on to the cardholder’s bank (issuer) to cover the costs of credit and the risk of non-payment.

Your local processing partner like Ardiah Managed Services takes the smallest portion of your fees. For example, someone who paid $2,000 in fees, Ardiah Managed Services could make between $50-$75, sometimes less. So just remember that when you are shopping rates, everyone pays interchange whether you’re on a flat rate or interchange plus pricing platform. It’s the issuing banks, their rewards, and operational costs that are being passed along to you, the business/merchant.

Understanding these dynamics can help you identify who truly advocates for your interests in the payment processing industry.


Next time you review your merchant processing statement, keep in mind that not all of those fees go to your bank or the card network. Interchange plays a pivotal role in the ecosystem, ensuring that banks can continue providing credit while enabling the seamless use of payment cards for consumers and businesses alike.

At Ardiah Managed Service, we’re committed to transparency in merchant processing. If you have questions about your processing fees or want to optimize your payment solutions, reach out to us. Understanding the nuances of interchange can empower you to make informed decisions about your business finances.

Chris Austin, President
Ardiah Managed Service

About the Author: Chris Austin is passionate about supporting small businesses and is the President of Ardiah Managed Services, a trusted provider of accounting, payment solutions, POS systems, payroll, and tax services. Chris and his team are dedicated to helping small businesses thrive by delivering tailored solutions and personalized support. If you have a small business support or service need, they would love to help! 207-230-4576 or email: [email protected]