What are interchange fees? How card processing costs work in Australia

When accepting card payments, Australian businesses typically pay an interchange fee as part of their overall payment processing costs. These fees help banks and payment networks process payments quickly and securely, but they are an ongoing expense – one that’s useful to be aware of and fully understand.

This guide explains what interchange fees are in simple terms, laying out how they work in Australia, who receives them, and what you can do to reduce costs, which includes managing all your international finances with a Wise Business multi-currency account.

What are interchange fees?

Interchange fees are charges paid by banks when a customer uses a card to make a payment. When someone pays using a credit or debit card, the merchant’s (business’s) bank or payment provider pays an interchange fee to the bank that issued the customer’s card. The merchant then ‘covers’ this cost through their payment processing fees. In other words: every card payment triggers a tiny bank-to-bank toll.

In practice, it looks like this:

1. The customer pays with a card
2. The payment travels through the card network
3. The issuing bank approves the payment
4. The merchant receives the funds minus fees
5. Part of these fees is the interchange fee

Interchange fees are usually charged as a percentage of the transaction amount plus a small fixed fee. They help cover costs linked to things like fraud prevention, card security systems, credit risk management, and payment infrastructure.

Interchange fees meaning for businesses

For many Australian businesses, interchange fees make up a big chunk of card acceptance costs, which can have an impact on day-to-day finances. It can affect profit margins, decisions about how to price products, the cost of international transactions, and how best to manage cash flow. When processing large volumes of card transactions, even small differences in these interchange rates can add up quickly.

Interchange fees vs scheme fees

Interchange fees and scheme fees are often conflated, but they’re different charges. Interchange fees are set by card networks like Visa and are paid to the customer’s issuing bank, accounting for most of the costs for card processing. In contrast, scheme fees are paid to the card network itself to cover network operations and infrastructure. They are typically smaller than interchange fees.

Interchange fees vs merchant service fees

Meanwhile, a merchant service fee is the total fee a business pays to accept card payments, with interchange fees one part of the broader cost. A merchant service fee, which is what most businesses look at when comparing full payment processing costs, can include interchange fees, scheme fees, gateway or platform fees, and any acquirer markups.

How interchange fees work

Now we’ve defined interchange fees, let’s look at how they actually work. Understanding the main players involved and the payment flow behind a typical card transaction makes it easier to understand the full process.

Key players involved

There are usually four parties involved in a card payment:

• Customer - the person making the payment using a credit or debit card
• Issuing bank - the bank that issued the customer’s card. In Australia, this might be CommBank or ANZ, for example.
• Acquiring bank - the provider helping the merchant accept payments. This could be a bank or a payment processor.
• Card network - the network routing the transaction between banks, such as Visa, Mastercard, or American Express.

The flow of an interchange fee

When a customer taps their card or inputs their details at an online checkout, it triggers a payment flow that includes the interchange fee.

1. The customer makes a payment
2. The transaction is sent to the merchant’s payment provider
3. The card network routes the transaction to the issuing bank
4. The issuing bank approves or declines the payment
5. The payment is settled
6. The merchant receives the funds minus the processing fees

During settlement, the merchant’s acquiring bank pays the interchange fee to the customer’s issuing bank, with the cost then passed onto the merchant as part of their card processing fees.

Are there interchange fees on debit cards?

Both credit and debit cards have interchange fees. However, because there’s less risk with debit cards, the fee is typically lower. Data from the Reserve Bank of Australia (RBA) shows that merchant fees for card payments (which include interchange fees) account for 0.2% of transaction values on average, compared to a higher 0.8% average for credit cards¹.

Who receives interchange fees?

The bank that issued the customer’s card earns the revenue from interchange fees, not the merchant’s bank. The issuing bank often uses these fees to cover the costs of processing the transaction, as well as funding card reward programmes or fraud protection tech and schemes.

Types of interchange fees

Interchange fees are set by card networks, but the actual rate depends on a range of factors, including the type of card being used and the risk of the transaction.

Visa interchange fees

Visa sets different rates depending on factors such as²:

• Debit vs credit cards - debit is usually cheaper because it’s lower risk
• Consumer vs business cards - business and corporate cards attract higher fees due to added benefits and risk
• Merchant category code - MCC codes classify the types of goods and services a business sells. Some industries (like supermarkets) are in lower-cost categories, while others (like corporate cards) sit higher.
• Domestic vs international transactions - cross-border payments cost more due to added processing and risk.

Mastercard interchange fees

Mastercard follows a similar structure to Visa, with higher fees for³:

• Ecommerce transactions - online payments carry more fraud risk
• Cross-border payments - extra checks and currency handling push fees up
• Premium or corporate cards - perks and rewards mean higher interchange fees

Amex interchange fees

American Express works a bit differently because it often acts as both the network and issuing bank, which can result in higher payment acceptance costs as it controls the entire payment process from issuing the card to settling the transaction. Amex isn’t subject to the RBA’s regulations⁴.

What do interchange fees look like in Australia?

There is a highly regulated environment for interchange fees in Australia. The RBA governs interchange fees for most card transactions, capping them to keep merchant costs down and make it easier for everyone to see the costs involved.

• Debit cards - the average fee can’t be more than $0.08 AUD per transaction. If the fee is charged as a percentage instead of cents, it can’t be more than 0.20%⁵.
• Credit cards - the average fee can’t be more than 0.50%, and no single credit card fee is allowed to go above 0.80%⁵.

Australia also has strict regulations for payment surchanges – charges businesses add to a transaction. Businesses can only pass on the actual cost of accepting card payments; inflated or excessive card fees aren’t allowed⁶.

How to manage and reduce interchange processing fees

If you take card payments often, a few best practices can keep interchange costs down.

1. Encourage cheaper payments - debit card payments cost less than rewards credit cards. You could, for example, use PayID or QR codes on your digital invoices or at checkout to help customers pay quickly via mobile banking apps.
2. Compare pricing models - payment providers use different pricing structures, ie, flat-rate pricing with a fixed percentage or fee and interchange plus, where the exact fee is determined by the card networks with a markup. Review itemised fees and choose the model that suits your transaction mix and volume.
3. Improve your processing practices - you might be able to qualify for lower interchange categories by settling transactions promptly, and using tokenisation and secure checkouts.
4. Review statements regularly - interchange categories and card fees can change. Review your merchant statements to spot unexpected fee hikes or hidden markups.
5. Use multi-currency settlement - international transactions cost more. Settling funds in multiple currencies (instead of just AUD) can reduce FX and processing fees.

Wise Business: Simplify global business payments

Unfortunately, interchange fees are just one part of taking international card payments. If you’re regularly working with overseas suppliers or accepting sales from customers outside Australia, you’ll quickly run into other costs. Traditional banks can add exchange rate markups, for example, and increase the flat-rate percentage fee for international cards.

With Wise Business, you’ll be able to send, receive, and manage money globally with low, transparent fees and the exact mid-market exchange rate – no markups or ‘penalties’ for expanding into new markets.

If you're a business in the Philippines trying to go global, you've probably hit a wall of confusing foreign exchange fees when collecting payments from international customers. Wise Business helps you cut through all that complexity—be it a local bank transfer or a wire transfer. By simplifying how you receive payments, you're free to pursue what matters—growing a local brand with global sights.

• Obtain account details to receive payments in USD, EUR, GBP, SGD, HKD and more for a one-time fee of 1,400 PHP.
• Simply share your account details with customers or add them to invoices.
• Zero fees when you get paid via ACH, FAST, InstaPay/PESONet, & other local transfers.
• Full fee transparency when clients pay you via Wire / SWIFT.
• Hold, send, and convert money at the mid-market rate in one account.
• Accept payments from customers and payment service providers (PSPs) like Stripe and Amazon.

➡️Get started with Wise Business today

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Interchange fees FAQs

1. Can Australian merchants pass interchange fees on to customers?
Yes, Australian merchants can still pass on interchange fees as a surcharge, but there are strict rules, and the RBA is planning to end all surcharging on debit and credit cards in October 2026⁷. Currently, you can only pass on the actual cost of interchange fees and card acceptance to customers (no markups).

2. Do interchange fees apply to contactless and online payments?
Yes, interchange fees typically apply to both. However, online payments usually have higher interchange fees compared to contactless in-person transactions because there is a higher risk of ‘card-not-present’ payments, which increases the likelihood of fraud and chargebacks.

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Sources:

1. RBA gov au - Interchange fees review average merchant fees for card payments
2. Visa - Interchange fees
3. Mastercard - Australia interchange rates PDF
4. RBA gov au - Interchange fees conclusions paper consumer interchange fees
5. RBA gov au - Background on interchange and scheme fees what rules apply to interchange fees in Australia?
6. ACC gov au - Card surchages
7. RBA gov au - Merchant card payment costs and surcharging our conclusions