The “Pass-Through” Myth
Why Interchange and Scheme Fees Are Quietly One of the Biggest Leaks in Merchant Payments
Most merchants treat interchange and scheme fees as untouchable. That assumption is costing them real money, every single month.
Ask a CFO what they pay their acquirer and you’ll usually get a confident answer. The MSC. The blended rate. Whatever the headline number on the contract is. Ask the same CFO what they paid Visa and Mastercard in scheme fees last quarter, broken down by fee category, and the room goes quiet.
That silence is the problem.
The “pass-through” framing has done a lot of damage
Acquirers describe interchange and scheme fees as pass-through. Money they collect on behalf of the card networks and issuing banks, with no margin attached. The implication is clear. There’s nothing to negotiate, nothing to audit, nothing to manage. Just pay it.
It’s a convenient framing. It’s also wrong in practice.
Interchange and scheme fees are not a single line item. They are hundreds of individual rates. Interchange categories defined by card type, transaction type, merchant category code (MCC), authentication method, data quality, geography, and processing channel. Scheme fees layer on top: assessment fees, cross-border fees, FX margins, network access fees, brand fees, kilobyte fees, refund fees, chargeback fees, and a long list of behavioural fees that most merchants have never heard of and never reconcile.
Pass-through is true at the contractual level. At the applied level, where the money actually moves, it rarely is.
Where the leakage actually happens
Across the merchant payments arrangements we’ve audited (e-commerce, airlines, hospitality, telco, retail), the same five issues come up over and over. Not occasionally. Routinely.
- Interchange category drift. Interchange isn’t one rate. It’s hundreds of categories, each triggered by a different combination of card product, transaction data, authentication method and issuer geography. Every month the mix of cards your customers use shifts a little. So does the BIN geography behind those cards, and the authentication outcomes that determine which categories transactions land in. Your blended rate moves with all of it. A 10 to 20 basis point drift over six months looks like “market conditions” on a statement. It usually isn’t. It’s the natural consequence of a moving card mix settling into higher-rate categories than it needs to, with no one on the acquirer side phoning to explain why.
- Cross-border misclassification. Whether a transaction is classified as cross-border has nothing to do with where your customer lives or where your business is registered. It’s determined by the issuer BIN. So a customer paying with a card issued by the non-UK arm of a global bank, while sitting in the UK, can land you in cross-border interchange. That carries both higher interchange and additional scheme fees. Edge cases and outright errors in BIN classification mean genuinely domestic transactions can be flagged cross-border and charged accordingly. Almost no merchant reconciles at the level of detail required to catch this, and the exposure grows quietly as customer card mixes internationalise.
- Scheme fee creep. The card networks update their fee schedules two to four times a year. New behavioural fees appear. Existing fees get repriced. Entire categories get restructured. This isn’t just a merchant problem. The UK’s Payment Systems Regulator has found that acquirers themselves accidentally purchase scheme services they didn’t intend to, and struggle to allocate scheme fees correctly to individual merchants. If the acquirer can’t track it cleanly, the merchant downstream has no realistic chance. What lands on the statement is a higher number, absorbed into the blend, with no usable line-item explanation unless the merchant goes asking for one.
- Scheme-to-acquirer volume rebates. This is the least-discussed economic in the entire chain, and probably the most consequential for large merchants. Card schemes offer acquirers volume-based incentives, rebates and commercial arrangements that sit between the scheme and the acquirer. Not between the acquirer and the merchant. Whether those benefits get passed through, and on what terms, varies significantly. The arrangements are rarely disclosed in the acquiring contract. They are almost never visible on the statement. If your volume is materially contributing to an acquirer’s scheme tier, the gap between what the acquirer receives and what you see can be substantial. Without independent benchmarking, it’s structurally invisible.
- Billing errors and reconciliation gaps. Acquirers reconcile billions of transactions a month against multiple network rate tables, fee schedules and currency conversions. At that volume, errors are statistically inevitable. Refunds billed at original-transaction rates. Duplicated fees. Misapplied surcharges. Incorrect category applications. Mishandled chargeback fees. None of it is necessarily deliberate. It’s the routine output of high-volume reconciliation done by one party only. These errors rarely get caught because the merchant has no independent view of what they should have been billed in the first place.
None of this is theoretical. Across the audits we’ve run, a meaningful share of total payments cost (often in the 5 to 15 percent range of the combined interchange and scheme fee line) turns out to be recoverable or optimisable once it’s properly examined.
Why finance teams miss it
A few structural reasons, none of them about competence.
The data is fragmented. Interchange and scheme fees sit inside acquirer statements, in formats built for billing, not analysis. Getting them into a view you can actually work with means parsing fee categories, mapping them back to transactions, and benchmarking against published network rates. Most finance teams don’t have the tools or the time.
The expertise is specialised. Interchange optimisation isn’t a generalist finance skill. It needs people who read network bulletins, track regulatory developments (Reg II in the US, IFR in Europe, the PSR’s ongoing scheme and processing fees work in the UK), and understand how transaction-level decisions translate into category-level rates. That’s a small population.
And the structural economics aren’t set up to surface the problem. A merchant that doesn’t ask doesn’t get told. The acquirer is not obliged to optimise your interchange. Only to bill it. The scheme-to-acquirer arrangements that shape the underlying economics sit a layer above the merchant’s line of sight entirely.
What “good” looks like
Merchants who get this right tend to do five things consistently:
- Reconcile billed interchange and scheme fees against contracted and published rates every month, not annually.
- Monitor interchange category distribution as a leading indicator. A sudden shift in category mix usually points to a data quality, MCC, or authentication issue worth catching early before it compounds.
- Audit cross-border classification against actual issuer BIN data, rather than trusting the acquirer’s flag.
- Benchmark the scheme fee burden, and the implicit pass-through of any scheme incentives, against comparable merchants in your sector and geography. This is the only realistic way to surface the economics described in point 4 above.
- Treat acquirer statements as data to be audited, not bills to be paid.
The merchants who don’t do this aren’t being overcharged in any contractual sense. They’re being charged exactly what the system produces when nobody is watching it closely.
That’s the real cost of the “pass-through” framing. It convinces good finance teams that there’s nothing to watch.
