Micro-lesson · Season 1 · Episode 02

Interchange

We left you with a bet: of your €60 of groceries paid by card, how much leaks away in fees? In this episode: the answer, and why Brussels had to step in.

5 min · read 4 concepts 4 quizzes
Concept 1 / 4

A fee between banks

Every card payment moves a fee between the two banks: interchange. It is paid by the acquirer (the merchant's bank) to the issuer (the customer's bank).

In practice, at settlement, the issuer pays out the €60 minus interchange, the fee is withheld at source, transaction by transaction.

Settlement arrives already net: the issuer keeps interchange at source, on every transaction.

💡 Remember: interchange goes exclusively to the issuer. The scheme earns the scheme fees (met in episode E01).
QUIZ 1 / 4
“Visa takes a percentage on every payment.” What is wrong with that?
Concept 2 / 4 · The bet

How much, on €60?

Your €60 of groceries, paid with a standard French debit card. Set the slider to the interchange the acquirer will pay the issuer, then release: the answer appears.

€1.50YOUR BET · ON €60
€0€1.50€3
Move the slider, the answer appears when you release.
What actually matters
IC++ or blended? IC++ is cleaner: interchange, scheme fees and margin each appear separately. It is also more complex, and plenty of merchants misread it. Blended gives a single rate, simple and predictable on the merchant side, but it hides the margin and pushes the risk onto the acquirer, who absorbs any drift in the card mix. To negotiate a blended rate without getting it wrong, you first need to know your own mix.
QUIZ 2 / 4
A merchant looks at its card fee and says: “that is all for my bank.” How much actually goes to it?
Concept 3 / 4

Why does this toll exist?

The issuer provides the payment guarantee for the merchant and protection for the cardholder. An authorised transaction = a paid merchant, even if the customer's account is overdrawn or the card was stolen. The issuer must also protect its customer, run the anti-fraud systems, and fund the cash advance of deferred debit and credit.

That guarantee scales with the transaction amount: the higher it is, the higher the risk. That's why interchange is a percentage, not a flat fee.

Interchange pays for these costs, and gives banks a reason to issue cards. Because a payment system is a two-sided market: it needs customers carrying a card and merchants accepting it. Interchange is the cursor that balances the two.

💡 The schedule is set by the scheme, which doesn't keep a cent of it: published, non-negotiable transaction by transaction, it varies by card type, channel (in-store or online) and country.
QUIZ 3 / 4
A customer pays at a merchant, and both bank with the same institution. What happens to the interchange?
Concept 4 / 4 · The Europe angle

Why Brussels had to step in

A scheme that raises its interchange attracts issuers, which issue more of its cards. Competition worked in reverse: it pushed up prices that merchants cannot negotiate. At France's scale, more than €600 billion is paid by card every year: a 0.1% shift means more than half a billion euros a year.

2015: the EU Interchange Fee Regulation (IFR) caps interchange on consumer cards across the EEA: 0.2% debit, 0.3% credit, your €0.12 from earlier. In France, the competition authority had led the way on CB fees back in 2011.

Case study · Brexit
Once outside the IFR's scope, the UK saw fees on UK–EEA online payments multiplied by five (0.3% → 1.5% on credit). Furious merchants, a regulator inquiry: a live demonstration of what the cap prevents.
The transactionInterchange
EEA card at an EEA merchantsame country or not: a Spanish card in Paris 0.2% / 0.3%IFR cap
Consumer card issued outside the EEA“inter-regional”: UK, US, China… 1.15% / 1.5%online; 0.2% / 0.3% card present
Commercial card · three-party schemecorporate cards, AMEX outside the capswhatever the country

EEA = the European Union + Iceland, Liechtenstein and Norway. The caps outside the EEA do not come from the IFR but from commitments Visa and Mastercard gave the European Commission in 2019, extended to 2029: that is the 1.5% in the Brexit case above.

💡 In the United States, credit interchange remains unregulated, often around 2%: it funds the cashback on American cards, a seemingly free perk, paid for through merchant fees and, ultimately, retail prices.
QUIZ 4 / 4
A French merchant accepts a Belgian debit card. Compared with a French card of the same type, interchange is:
Episode complete
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SCORE
–SCORE
–TIME
–BEST STREAK
Interchange: paid by the acquirer (merchant's bank) to the issuer (cardholder's bank), on every transaction.
On €60 debit: €0.12, passed on to the merchant inside its card fee (the MSC). The cardholder never sees it.
It pays for the issuer's payment guarantee, hence a percentage rather than a flat fee; the schedule is set by the scheme, which keeps none of it.
IFR 2015: 0.2% debit / 0.3% credit in the EEA. Outside the EEA, the 2019 Visa/Mastercard commitments cap it instead, far higher. Commercial cards and three-party schemes: uncapped.
Next episode
S1 · E03 · CB & co-badging, nearly every French card carries two schemes on the same chip, and each payment picks a single winner. Who chooses, who loses, and why the French card is a global exception: next episode.

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