February 27, 2020

Understanding Interchange Rates

Interchange Fees make up the majority of the cost involved in accepting a credit card payment. Though interchange fees are collected by the card networks, they are paid out to the bank that issued the payment card. The average interchange rate for a credit card payment is around 1.81%, while the typical interchange for debit cards is 0.5% + $0.21.

For those who might not know, an Interchange Fee generally consists of a percentage of the total transaction plus some fixed amount, for example 2% + $0.10 per credit card transaction. Whenever a credit card or debit card transaction is processed, funds are transferred from the issuing bank to the acquiring bank (sometimes called the merchant bank). Card associations, like Visa and Mastercard, facilitate the process. For the service they provide, associations collect a fee from the acquiring bank.

Visa has the highest number of cards in circulation with about 52% of the market share as of 2016. MasterCard comes in at number two with about 32%, followed by Discover (about 8%) and AmEx (about 7.5%).

How Interchange Rates Vary

Every April and October, card associations Visa and MasterCard revisit their interchange rates and usually adjust them. You can see an increase or decrease in these rates, and sometimes they may not change them at all, but it’s always better to understand how these companies operate so you’re not confused when looking over your processing statements.

Another way that these interchange rates may vary is if your business changes the level at which it processes cards. Credit card processing methods fit into three levels: Level 1, Level 2 and Level 3. Each level is defined by how much information is needed to complete a payment, with Level 1 requiring the least and Level 3 the most. We’ll focus on explaining how each Level works, and what information is required of your business at each Level.

Level 2 Processing

Level 2 processing helps businesses reduce their processing costs by requiring them to provide additional reporting data for their clients. Level 2 processing is oftentimes associated with B2B because higher processing levels may be required depending on the types of cards accepted, the quantity being processed and the amount of information needed to be gathered to secure the transactions. Only certain cards like corporate cards, purchasing cards or government cards qualify for Level 2 or 3 processing.

Level 2 data can be better explained by quickly reviewing Level 1 data, which includes the following:

  • Credit card number
  • Expiration date
  • Billing address
  • Zip code

Level 2 requires the same data as Level 1 in addition to more detailed information for the benefit of your buyer. The data required for Level 2 processing in addition to Level 1 data is the following:

  • Sales tax amount
  • Customer code
  • Merchant postal code
  • Merchant tax identification number
  • Invoice number
  • Order number

Ultimately, Level 2 data processing saves businesses money on processing costs. Savings come from lowering the interchange rates that companies have to pay to the credit card associations per transaction. Interchange rates are set by credit card companies such as MasterCard, Visa, American Express, and Discover, and common reductions are around 0.50% lower than typical sales, but this can differ depending on the credit card association.

Thanks to the extra level of information required, Level 2 credit card processing is also more safe and secure than Level 1, as it reduces any potential fraud or chargebacks to your business.

Level 2 data adds huge value to B2B organizations processing high transaction volumes. Even with credit card associations that offer smaller discounts, every little bit adds up. With more than 1 million transactions going through the business annually, these savings come to a significant amount at the end of the year.

For additional help with understanding your processing fees, statement reading softwares like Staitment exist, using AI to determine which fees are negotiable or even unnecessary. Contact a Sonder Payments expert for more information.

Level 3 Processing

Level 3 processing is ideal for companies that do business with large corporations or government entities––in fact, this tier of payment processing was originally created to prevent branches of the government from overspending.

Level 3 processing enables B2B businesses to save money by giving their credit card companies more information than Level 1 or 2 transactions. The higher the level is, the more details it requires. And the higher the data level, the less it costs merchants to process transactions.

If you do business with large companies or government agencies, it may be worth it to do the research to find out if level 3 data processing is an option for you.

In addition to the data requirements in Levels 1 and 2, Level 3 processing requires the additional following information:

  • the postal code your company is shipping from
  • the postal code your company is shipping to
  • the invoice number
  • the order number
  • the freight amount
  • the line item details of the purchase.

Since higher data levels have lower interchange rates, it is worth your time to learn to qualify for Level 3 processing–– especially if your company does a lot of B2B transactions with large syndicates, or if you aspire to start doing business with the big guys, many of which only use Level 3 cards for major purchases.

It’s important to note that Discover and AmEx do not offer Level 3 data processing. This can help explain why Visa and MasterCard are significantly more popular than these cards.


If you want to lower your interchange rates and have already exhausted all of your options as a Level 1 processor, consider raising your Level to 2 or 3 by demanding more information from the customer at the point-of-sale.

Furthermore, if you’re a B2B or a business that works with government agencies, you should absolutely be at a processing Level higher than 1. There are huge benefits that come with saving less than a percent on a transaction in the long-run, and every business owner- big or small- should be taking advantage of them.

At Sonder Payments, We know that accepting card payments can be confusing sometimes, so we pair each merchant with a dedicated Solutions Architect, ensuring that you’ll have someone on your side when you feel lost.

Most of all, we hope to offer merchants peace of mind. Any business owner can have confidence in a partnership with Sonder Payments — our backend technologies process over 40 billion transactions annually. Visit our website to speak to an expert, and to learn more about your options when it comes to payment processing.