Interchange fees explained for Canadian merchants

Every time a customer pays you with a credit card, a slice of that sale disappears before the money reaches your account. The biggest piece of that slice — usually by far — is interchange. Yet most Canadian merchants have never seen an interchange rate on their statement, because most pricing models are built to keep it out of sight.

This guide explains what interchange actually is, who receives it, why the rate changes from one transaction to the next, and how to figure out what you are really paying. None of it is secret. Visa and Mastercard publish their Canadian interchange schedules publicly. The gap is not access to the information — it is that most processors have no incentive to walk you through it.

What interchange is — and who actually gets it

Interchange is a fee paid on every card transaction by the acquiring side (your processor) to the issuing bank — the bank that gave your customer their card. It is set by the card networks (Visa and Mastercard in Canada), but the networks do not keep it. The money flows to issuers, who use it to fund rewards programs, fraud protection, and the cost of extending credit.

That detail matters more than it sounds. Because interchange goes to the issuing bank, your processor cannot negotiate it away, discount it, or waive it. It is the same wholesale cost for every processor in the country. When a processor claims to have 'lower rates,' the only thing it can actually lower is everything stacked on top of interchange.

How a transaction's fee splits three ways

When you pay, say, a 2.5% total cost on a credit card sale, that number is not one fee. It is three fees added together:

• Interchange — the largest component, paid to the issuing bank. Set by the card networks on published schedules. Non-negotiable, identical for every processor.
• Network assessment fees — a much smaller charge paid to Visa or Mastercard themselves for running the network. Also fixed and published.
• Processor markup — everything else. This is the only part your processor keeps, and the only part that is actually negotiable.

The first two components are wholesale costs — the same for a corner café and a national chain going through the same networks. The third is where processors compete, and where the difference between a fair deal and an expensive one lives. Every conversation about 'reducing your rate' is really a conversation about the markup, whether the salesperson frames it that way or not.

Why interchange varies from one tap to the next

Interchange is not one rate. The published schedules contain dozens of categories, and the rate applied to any given sale depends on factors mostly outside your control:

• Card type. A basic no-frills credit card carries lower interchange than a premium rewards card, which in turn is usually lower than a top-tier travel or 'infinite privilege' card. Someone has to fund those points — and through interchange, it is partly you.
• Consumer vs. business cards. Corporate and business cards typically carry among the highest interchange rates on the schedule.
• Card-present vs. card-not-present. A card tapped or inserted at your terminal qualifies for lower rates than the same card keyed in over the phone or used online, because in-person transactions carry less fraud risk for the issuer.
• Debit vs. credit. Interac debit in Canada works on a completely different (and much cheaper) model — typically flat per-transaction pricing rather than a percentage.

This is why your true cost moves month to month even when your pricing never changes: your customer mix changes. A month heavy in premium rewards cards costs more at wholesale than a month of basic cards, whoever your processor is.

How Canadian interchange is set — and the 2024 small-business reductions

In Canada, Visa and Mastercard set interchange domestically and publish their schedules online. Historically, the federal government has also negotiated voluntary commitments with the networks to cap average interchange for consumer credit cards.

The most recent round took effect in October 2024: under an agreement with the Government of Canada, Visa and Mastercard reduced interchange rates for qualifying small businesses — those under annual volume thresholds set per network. The mechanism is worth understanding: the reduction applies to interchange, the wholesale cost paid to issuing banks. It does not automatically reduce what a merchant pays.

Whether you saw a cent of that reduction depends entirely on your pricing model. On interchange-plus pricing, the savings flow through automatically, because your price is defined as interchange plus a fixed markup — when interchange drops, your cost drops. On flat-rate or tiered pricing, the processor's wholesale cost went down while your price stayed put. The difference became extra processor margin, quietly.

If you qualified as a small business under the network thresholds and your effective rate did not move after October 2024, that is worth a pointed question to your processor.

Why flat-rate pricing hides interchange

Flat-rate pricing — one blended percentage for every card — is sold as simplicity, and it genuinely is simple. But the simplicity works by averaging: the processor sets the flat rate high enough to cover the most expensive cards it might see, which means every cheaper transaction underneath that ceiling generates extra margin.

Tap a basic low-interchange card on a flat-rate plan and the spread between wholesale cost and your flat rate can be substantial — and it is invisible, because the statement shows one blended number with no breakdown. You cannot see interchange, so you cannot see the markup, so you cannot compare offers on anything except the headline rate. Which is precisely the point.

Flat rate is not always wrong — for very low volume, predictability can be worth the premium. But it is a premium, and you should choose it knowingly rather than default into it.

How interchange-plus exposes the real cost

Interchange-plus (also called cost-plus) pricing passes the actual interchange and network fees through to you at cost, then adds one disclosed markup on top. Your statement shows the wholesale cost per category and the markup separately.

That structure changes the whole relationship. You can verify the interchange charges against the networks' published schedules. You can compare processors on the only number that differs between them — the markup. And when the networks cut interchange, as they did for small businesses in 2024, you automatically pocket the difference. This is the model SavPay quotes on, and you can see how it is structured on our pricing page.

How to read your own effective rate

Whatever pricing model you are on, one calculation cuts through it: your effective rate. Take the total fees deducted in a month — every line item, not just the headline rate — and divide by your total card volume for the same month. That single percentage is what card acceptance actually costs you, and it is the only fair way to compare offers.

As a purely illustrative example: a merchant processing $50,000 in a month who pays $1,400 in total fees has an effective rate of 2.8% — regardless of what the contract's advertised rate says. If your effective rate looks high for your card mix, or you simply cannot reconcile it against your agreement, run your numbers through our savings calculator or book a call and we will walk through a real statement with you.

For quick definitions of interchange and the other terms on your statement, our glossary entry on interchange is a good bookmark.