What Are Interchange Fees — And Why They Matter
At Pepper Pay, we believe that understanding how your processing fees work isn't just helpful — it's empowering. One of the most important pieces of that puzzle is something called the interchange fee. You'll see it on every card transaction, but it's not always clearly explained. Let's fix that.
Here's what interchange is, how it works, and why it plays a key role in the cost of accepting card payments.
What Is an Interchange Fee?
An interchange fee is a base fee set by the card networks (like Visa, Mastercard, Discover, and American Express). It's paid by your business to your customer's card-issuing bank each time you accept a card payment.
That fee helps cover the cost of things like fraud protection, transaction risk, and the infrastructure behind the banking system. Importantly, Pepper Pay doesn't keep any portion of this fee — it's passed through exactly as the networks require.
How Interchange Fees Are Calculated
Interchange rates vary based on several factors, including:
- Card type (credit, debit, rewards, business, etc.)
- Transaction method (chip, tap, keyed, online)
- Business type (industry category)
- Transaction size and risk profile
Each fee typically has two parts:
- A percentage of the sale amount
- A fixed per-transaction fee
For example:
A Visa transaction might carry a rate of 1.80% + $0.10
On a $100 sale, that means $1.90 goes to the cardholder's bank
Who Sets Interchange Fees?
Interchange rates are set by the major card networks — and updated twice per year (typically in April and October). These rates are standardized across the industry, so all processors pay the same base fees. Interchange rates are available on request from your processor.
Why This Matters to You
Interchange fees make up the majority of your total processing costs — often 70-90% of the fee on any given transaction. So while they're not something we control at Pepper Pay, they absolutely impact your bottom line.
Here's why it's worth understanding them:
Not all transactions cost the same. A debit card may cost less than 1%, while a high-tier rewards or corporate card could cost 2.5% or more — just in interchange.
Interchange explains why you see different costs on similar sales.
Transparent pricing models like Interchange Plus show you the actual interchange rates for each transaction, so you know exactly what's being charged — and why.
Final Thought from Pepper Pay
Interchange fees are just one part of the larger payments' ecosystem, but they're an important one. While we don't control them, we do believe in helping you understand them — so you're not left guessing where your money goes.
If you ever want help reviewing your fees or identifying which card types are driving your costs, our team is always here to walk you through it — with no pressure, just clarity.
sales@pepperpay.com; 786-358-9338 option 1
The Flow of a Card Transaction: From Authorization to Settlement
If you've already read How Credit Card Processing Works, you know the basics: a customer pays, a bank approves, and you get funded. But behind the scenes, every card transaction moves through a few key stages — each with its own timing, purpose, and impact on your cash flow.
Here's a closer look at the actual flow of a card transaction, from real-time approval to final deposit in your account.
1. Authorization (Instant)
This is the real-time decision made by the customer's bank. It happens within seconds after the card is entered or tapped. During authorization:
- The funds are verified but not yet transferred.
- The transaction is approved or declined based on balance, fraud rules, and card status.
- The amount is placed on hold by the bank.
Tip from Pepper Pay: At this stage, the transaction is not yet finalized — it's simply reserved
2. Capture (End-of-Day)
Transactions that have been authorized are temporarily stored. To move forward, they must be captured — this happens when your POS or gateway closes the batch.
- Capture marks the transaction as final and ready to be funded.
- You can't edit or void a transaction after it's captured.
- This is the point where interchange fees are officially incurred.
Most merchants schedule batch close for end-of-day, but Pepper Pay gives you the flexibility to adjust based on your business hours.
3. Settlement (Processing Nightly)
Once your batch is submitted, Pepper Pay processes your transactions for settlement. During this stage:
- Card networks (Visa, Mastercard, etc.) coordinate the movement of funds from your customers' banks.
- Those funds are sent to our acquiring bank, where they're reconciled and prepared for deposit.
- This process runs overnight for most businesses and is fully automated.
The amount you see in your funding report reflects gross sales minus interchange, network fees, and Pepper Pay's markup.
4. Funding (Next Day or Same Day)
Once settlement is complete, Pepper Pay initiates the deposit to your business bank account.
- Next-Day Funding is our standard — all merchants are set to this by default.
- Same-Day Funding is available for eligible merchants upon request.
Funding cut-off times matter. If you batch after the same-day deadline, it rolls into the next funding cycle.
5. Reconciliation (Anytime)
You'll receive a detailed batch report and funding confirmation, available in your Pepper Pay dashboard.
This report shows:
- All transactions in the batch
- Time and date of funding
- Interchange categories and rates
- Total fees deducted
Pepper Pay provides real-time reporting to help you tie out your daily sales to deposits — no spreadsheets needed (unless you want them).
Final Note from Pepper Pay
While payment processing happens in seconds, the financial flow behind it follows a series of checkpoints. Understanding this flow helps you track cash more confidently, spot delays, and make better business decisions.
If you're ever unsure about what stage a transaction is in — our support team is here to help you trace it from authorization to funding.
support@pepperpay.com; 786-358-9338 option 3