Who pays interchange, the merchant or the operator?

The acquirer pays interchange to the issuer, and the cost flows down the chain. The merchant pays a single price, the merchant service charge, which the operator sets. The operator's margin is what remains after interchange, scheme fees, processor fees and acquirer fees are paid upstream, which is why each upstream layer matters to its pricing.

The chain of fees

Interchange is paid by the acquirer to the card issuer on each transaction. The acquirer adds scheme fees paid to Visa or Mastercard, processor fees and its own margin, and charges the operator. The operator charges the merchant a single price, the merchant service charge. The merchant pays only that price; everything upstream is the operator's cost.

Where the margin sits

• Merchant service charge minus interchange, scheme fees, processor and acquirer fees equals the operator's margin.
• Under blended pricing, the operator absorbs variations in interchange across card types.
• Under interchange plus, those variations pass to the merchant, and the margin is the markup.

Why each layer matters

A few basis points on any upstream layer change the operator's margin on every transaction. That is why operators track fees itemized per transaction and provider: to check what they pay against their contracts, to compare acquirers, and to route transactions where the total cost is lowest. For merchants, the useful transparency is seeing what their price contains, which interchange-plus statements provide and blended rates hide.