Interchange fees are charges that merchants pay to banks when customers use credit or debit cards for purchases. These fees are set by card networks like Visa and Mastercard and are typically a percentage of the transaction amount plus a fixed fee. They help cover the costs of processing card payments and managing fraud. When a customer makes a purchase, the interchange fee is paid to the cardholder's bank, known as the issuing bank, while the merchant's bank, or acquiring bank, receives the remaining amount. These fees can vary based on factors such as the type of card used and the nature of the transaction.