If you are wondering what exactly interest exchange fees are and how to hedge against them, you've come to the right place. This guide breaks down what interchange fees are, how they work with payment and invoices, how they differ between major card schemes, the most important UK regulations, and ways SMEs can manage or reduce these costs.
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If one thing holds true about the global financial systems, it is that no matter where you are or what you are doing, if you are moving money from one place to another, there will be fees involved. Businesses in the UK have to accept cards, as this is still the preferred payment method for millions of customers.
Anyone who exists in modern society knows that card purchases also come with fees, for the seller and sometimes the buyer. What many don't know about is the interchange fees, which are often confusing because businesses don't pay them directly as a type of line item on the outgoings side of the ledger.
Interchange fees are charges paid by a merchant’s acquiring bank to the cardholder’s issuing bank every time a customer uses a credit or debit card. They are part of the behind-the-scenes cost structure built into card payments and are typically expressed as a percentage of the transaction plus a fixed pence amount (for example, 0.2% + 1p on regulated UK debit card payments).
The merchant pays the interchange fees, but it is not done as a separate bill. Instead, these fees are bundled into the card processing fee. For example, if a customer pays £100 using a UK-issued debit card, a small portion of that payment is automatically sent to the customer’s bank as an interchange fee. The merchant never pays this directly, but it is built into the total card processing cost they are charged.
Most fee structures in the UK are multilateral interchange fees. This means companies like Visa and Mastercard set standard rates that apply across all participating banks. These are regulated for consumer cards under the UK’s version of the Interchange Fee Regulation (IFR). Commercial cards, corporate cards, and some international transactions are not subject to these caps, which is why they often carry noticeably higher fees.
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Whenever a customer taps, swipes, or completes an online checkout, several things happen behind the scenes. Interchange fees sit in the middle of this process and determine how much the merchant ultimately pays for card acceptance.
Here’s a simple breakdown:
What does this mean in practice?
Yes, they do. Interchange rates vary because different transactions carry different levels of cost and risk. Basic consumer debit cards usually sit at the low end, while premium credit cards and commercial cards attract higher fees because they fund rewards programmes and involve greater exposure for the issuer.
Rates also change depending on whether the payment is domestic or cross-border. UK consumer transactions are capped, but international ones are not, so they cost more. How the payment is taken matters too: in-person Chip & PIN transactions are generally cheaper than online or manually entered payments, which require more fraud protection. These factors combine to create a wide range of possible interchange outcomes.
Below is a simplified snapshot of how interchange fees typically differ by transaction type (illustrative ranges, not rate quotes)
Visa, Mastercard, and American Express are all well-known cards that have a few things in common: they are all American (unfortunately), and they all have different interchange fees. This comes up when reviewing overall pricing in the UK.
UK interchange rules shifted after Brexit, and the result is a split system. Domestic payments stay fairly stable, while cross-border and business cards can cost much more.
The UK’s version of the IFR caps domestic consumer card fees at 0.2% for debit and 0.3% for credit. These limits apply only when a UK-issued consumer card is used for a UK transaction, which helps SMEs keep everyday card costs predictable.
Business, corporate, and purchasing cards fall outside the IFR. Because they are uncapped, their interchange fees are often higher and can vary widely, which is why B2B payments tend to cost more.
Before Brexit, payments between the UK and EEA were covered by EU fee caps. After Brexit, those transactions were reclassified, allowing card schemes to raise rates, with UK merchants often paying around 1.15% on credit and 1.00% on debit for EEA-issued cards.
The PSR oversees card payment markets in the UK. It has been reviewing cross-border fee increases and pricing transparency, and while no new caps exist yet, ongoing scrutiny means rules could change again.
The UK sits somewhere between the EU and the US on interchange fees. Like the EU, the UK caps domestic consumer card fees, which keeps everyday payment costs fairly stable. The US does not have comparable caps, so interchange fees are generally higher and more variable. The biggest difference is that UK–EU payments lost their shared caps after Brexit, making cross-border transactions more expensive than before.
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Interchange fees are not directly negotiable with card schemes or banks, but SMEs have several practical ways to reduce their exposure to high-cost transactions.
When dealing with B2B payments, cards are often an expensive way to get paid, especially when buyers use commercial or international credit cards. Cards are a necessary evil, as everyone uses them, even Buddhist monks tucked away in the Himalayas. But credit cards are not the only solution to payment. iwocaPay offers a different route by letting UK SMEs give customers flexible trade credit while still getting paid upfront, without card networks sitting in the middle. Because transactions run outside card schemes, interchange fees are avoided altogether, which removes cost surprises on larger invoices. Using iwocaPay’s trade credit (B2B BNPL) helps businesses protect margins, keep cash flow steady, and still offer buyers breathing room on payment terms
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