Interchange, scheme fees, MDR: where the money actually goes
A ₦10,000 swipe pays five different actors. Here's the math.
By Solomon Ajayi · Free to read, no signup
Merchant accepts ₦10,000 from a Visa card. They receive ₦9,725. Where did the ₦275 go? Five buckets: INTERCHANGE (paid to the card's issuer, set by scheme, typically 1.5-2.0%), SCHEME FEE (paid to Visa/Mastercard/Verve, ~0.13-0.20%), ACQUIRER PROCESSING FEE (your processor's per-transaction cost), MDR MARKUP (what your acquirer keeps on top), and sometimes a separate PAYMENT FACILITATOR FEE (Stripe / Paystack's take). This lesson breaks down the entry on the acquirer side so every basis point is named and booked to its own GL account. Without this discipline you cannot reconcile to your scheme statement and you cannot prove your MDR pricing to a sponsor bank.
The merchant discount rate the merchant pays is not one fee, it is a stack of fees paid to different parties, and lumping them into a single line is how acquirer margins quietly evaporate. Of the ₦275 skimmed off a ₦10,000 sale, interchange goes to the issuer, the scheme fee goes to Visa or Mastercard or Verve, the processor cost is your wholesale rail charge, and only the leftover markup is yours to keep. Four destinations, one of which is your actual profit.
The discipline this lesson teaches is granular splitting: every basis point gets its own general-ledger account. Interchange to its expense account, scheme fee to its own, processor cost to its own, and your markup to revenue. The entry grosses up so it balances, the scheme receivable carries the full amount in and the merchant payable plus your named fees carry it back out. Your net margin is revenue minus the three cost lines, visible at a glance instead of buried.
Two things force this on you whether you like it or not. The scheme sends you a statement broken out by fee type, and you cannot reconcile against it to the cent unless your books are split the same way. And your sponsor bank will ask you to prove your gross margin on every transaction, which you cannot do if interchange and your markup are tangled in one number. Acquirer economics live at roughly thirty to eighty basis points of net margin, so a small misclassification swamps the real profit.
Worked example, step by step
₦10,000 sale, all fees broken out
Sale of ₦10,000. Interchange: 1.65% = ₦165 (issuer's cut). Scheme fee: 0.15% = ₦15 (Visa's cut). Processor cost: 0.05% = ₦5 (your processor's wholesale cost). MDR pricing to merchant: 2.5% = ₦250. Your gross revenue is ₦250. Your COST per swipe is ₦185. Your NET margin is ₦65. Merchant takes home ₦10,000 - ₦250 = ₦9,750.
| Account | Debit | Credit |
|---|---|---|
| Scheme Receivable (1570) | ₦10,000.00 | |
| Interchange Expense (5610) | ₦165.00 | |
| Scheme Network Fee (5620) | ₦15.00 | |
| Processor Cost (5630) | ₦5.00 | |
| Merchant Payable (2400) | ₦9,750.00 | |
| Merchant Fee Revenue (MDR markup) (4410) | ₦435.00 |
Scheme Receivable UP ₦10,000 (debit, the scheme will pay you). Interchange Expense UP ₦165 (debit). Scheme Network Fee UP ₦15 (debit). Processor Cost UP ₦5 (debit). Merchant Payable UP ₦9,750 (credit). Merchant Fee Revenue UP ₦435, wait, that overcredits. The math is: scheme pays you ₦10,000. You pay merchant ₦9,750. Costs against revenue: ₦165+₦15+₦5 = ₦185. So revenue ₦250 minus costs ₦185 = ₦65 margin. But the entry has to balance gross. Five lines, each named: Scheme Receivable ₦10,000 debit; Interchange ₦165 debit; Scheme Network Fee ₦15 debit; Processor Cost ₦5 debit; Merchant Payable ₦9,750 credit; Revenue ₦435 credit. Total debit: 10,000+165+15+5 = 10,185. Credit: 9,750+435 = 10,185. ✓
Takeaway
Every basis point in your MDR needs its own GL account so you can reconcile against the scheme statement and prove your gross margin to the sponsor bank. Acquirer economics live and die at ~30-80 bps of net margin per transaction at scale. Misclassify interchange as 'processor cost' and you'll silently overstate your gross margin until the next audit catches it. The fix is unsexy but mandatory: one account per fee party, every entry split granularly, monthly recon against the scheme statement to the cent.
Practice this on a real ledger
Reading is half of it. Open this lesson in the lab to post the entries yourself against a real Postgres-backed double-entry ledger, with the validation on. Free, your sandbox is yours.