DEFINITION of Interchange Rate
Interchange Rate is a fee
that a merchant's bank pays a customer's bank when the merchant accept credit
or debit cards. The fee is charged by the bank that funds the transaction for
bearing the handling costs and the risk. The card-issuing bank deducts the
interchange fee from the amount it pays to the merchant's bank. The latter then
pays the merchant the amount of the transaction minus the interchange fee and an additional,
usually smaller fee for its own services.