Card interchange is a complicated and sometimes vexatious topic. Everyone seems to have their own agenda when talking or writing about it. Which is why so much on the topic is confusing, misleading, ambiguous or just plain wrong. We set out the facts so you can make up your own mind.

Interchange is a fee paid between two banks or payment providers each time a payment card is used.

In the case of Visa and Mastercard, who operate a four-party model, the fee for a typical purchase transaction is paid by your bank or provider (known as the acquirer) to your customer’s bank or provider (known as the issuer).

See also: The ultimate overview of acquirers for UK businesses

Just in case you were wondering, the four parties in the model are: you, your customer, the acquirer and the issuer. (In actual fact, Visa or Mastercard sit in between the various banks or providers to administer payments between them. So really, perhaps it should be called a five-party model).

How is the fee determined?

The precise fee paid each time a card is used depends on a number of factors. These include the type of card used (e.g. debit, credit, commercial), the security of the payment (e.g. chip or swiped via the magnetic stripe), whether the payment was made in person (i.e. face-to-face) or on a website or via telephone. It can also depend on your industry sector, your country, which country your customer’s card comes from, and so the list goes on.

Needless to say, the major card schemes have different interchange rates between their participating banks or payment providers.

What you pay

Your bank or payment provider generally passes on the cost of interchange to you as part of their charge for providing card payment services. When reading up on the subject, you may see this described as a ‘merchant service charge’ (MSC for short) or ‘merchant discount rate’ (MDR for short).

Different banks and payment providers charge differently for their services. They may present these charges differently too. So far, so normal for business, right?

Utility companies, mobile phone firms and broadband providers all have different offers at different prices for fairly similar services. Sometimes, they have promotions or special offers available to all customers or just for new or existing customers, and so on.

Not to criticise or defend banks or payment providers, but it’s a simple matter of fact that various businesses price differently, and display these prices to customers differently. It’s also a matter of fact that performing like-for-like comparisons can be difficult as a result.

Blended or unblended rates

There are two main ways that banks and providers present charges for their card payment acceptance services:

Blended (or bundled) rates

Generally, this is simple pricing with fewer individual rates. There may even be a single rate, so regardless of the type of card the customer uses (e.g. debit or credit card), card brand (e.g. Visa, Mastercard, Amex), your industry sector, etc., you pay the same rate per transaction.

Unblended (or unbundled) rates

Generally, this is more complicated pricing with many more individual rates. Sometimes, you see this described as ‘interchange+’ or ‘interchange++’ pricing.

Interchange+ pricing consists of two elements: the cost of interchange and the mark-up your bank or payment provider adds for providing card payment acceptance services.

Interchange++ pricing consists of three elements: the cost of interchange, the mark-up your bank or payment provider adds for providing card payment acceptance services, and the cost of the card scheme fee they themselves incur.

The charges you pay, as well as the transparency and granularity over the breakdown of these charges, depend on your pricing plan and contract with your bank or payment provider.