Settlement & Clearing
How authorized card transactions are submitted for clearing, how net positions are computed across thousands of banks, and how funds actually move. Covers clearing file formats, dispute timelines, and interchange fee economics.
Payment Economics
The cost of accepting a card payment is composed of multiple layers of fees. Understanding the fee structure is essential for merchant negotiations, product pricing, and payment optimization strategies.
Merchant Discount Rate (MDR) Components
MDR = Interchange + Scheme Assessment + Acquirer Margin + Processor Fee
The MDR is the total fee a merchant pays on each transaction as a percentage of the transaction value (plus sometimes a per-transaction flat fee). It is the sum of fees flowing to four distinct parties.
Interchange (Flows to Issuer)
Interchange is set by the card scheme semi-annually and varies by card type, merchant category, entry mode, and geography. It is the largest component of MDR and goes to the card-issuing bank to compensate for fraud risk, interest-free days, and rewards programs.
| Card Type | Typical Interchange Range (US) | Notes |
|---|---|---|
| Consumer Debit (regulated) | 0.05% + $0.21 | Durbin Amendment cap applies to banks >$10B assets |
| Consumer Debit (unregulated) | 0.20% – 0.80% | Smaller issuers, exempt from Durbin regulation |
| Consumer Credit (basic) | 1.50% – 1.80% | Standard non-rewards consumer credit card |
| Consumer Credit (rewards) | 1.80% – 2.40% | Cash back, travel rewards cards |
| Premium Rewards / Signature | 2.10% – 2.70% | High-end rewards cards, Visa Signature / MC World Elite |
| Commercial / Corporate | 2.50% – 3.50%+ | Business cards, purchasing cards, T&E cards |
Scheme Assessment (Flows to Network)
| Fee Type | Visa | Mastercard | Notes |
|---|---|---|---|
| Network Assessment | 0.1375% | 0.1375% | Core per-transaction fee to the scheme, percentage of transaction value |
| Per-auth Fee (NABU / APF) | $0.0195/auth | $0.0195/auth | NABU (Visa) / APF (MC) — per authorization message fee |
| Fixed Acquirer Fee (FANF) | Monthly, volume-tiered | n/a (similar programs) | Visa FANF is a fixed monthly fee per merchant location, tiered by volume |
Net to Merchant — USD 100 Transaction Example
Basic Debit Card
Rewards Credit Card
Commercial Card
Note: These are approximate US market rates for illustrative purposes. Actual interchange rates are published by each network and vary by MCC, card type, entry mode, and transaction size. Large merchants negotiate bundled MDR rates with their acquirers.