Defining interchange plus pricing


In the dynamic world of commerce, where every penny counts, understanding payment processing can be a game-changer. The pricing model you choose, can have big implications on your processing charges. 

Today, we’ll talk about the interchange plus pricing model. Interchange plus pricing is a term that has been gaining momentum in the realm of payment processing, and for good reason. It represents a departure from the complex and often opaque fee structures that have long dominated the industry, offering a more transparent and cost-effective solution for merchants.

In this blog we’ll cover the ins and outs of interchange plus pricing, how it compares to other pricing models and whether or not this pricing model is right for your business. 

Interchange definition

Interchange plus pricing is what it sounds like: a markup that your credit card processor charges on top of the monthly interchange fees. Also called a wholesale fee, interchange plus pricing is a pricing model used by credit card processors that determines merchant per-transaction costs. The two components that make up this model are the established interchange fee, which is set by the credit card company and the markup set by the credit card processor.

How does interchange plus pricing work?

Let’s say you own a boutique, and your processor currently charges you an interchange plus rate of 0.20% + $0.10 per transaction for a retail transaction. When a customer comes to your store and spends $100 (including tax) for clothes and pays with a credit card, the card’s interchange cost is 1.580% plus $0.10, or $1.68.

The processor passes that cost on to you and charges a markup of 0.20% plus $0.10, or $0.30. So, your total cost for taking the credit card is $1.98, or 1.98%.

When it comes to interchange plus rates, it’s not a one-size-fits-all model. Instead, the costs will vary as there are different rates for different types of credit cards, as well as different rates for card-present and card-not-present transactions. It’s also important to know that interchange rates imposed by the card companies are non-negotiable; you can only improve upon what your processor is tacking on above interchange.

For example, the interchange rate for Visa Debit Retail CPS is 0.800% plus $0.15 for swiped cards, and 1.65% plus $0.15 for keyed cards. Meanwhile, a Visa Credit Retail Rewards Signature Preferred is 2.100% plus $0.10 for swiped cards, and 2.400% plus $0.10 for keyed cards.

How does interchange plus pricing compare to other pricing models?

Compared to other pricing models, such as tiered pricing or flat pricing, interchange plus is one of the fairest methods available to merchants. Interchange pricing is highly transparent, in that all the charges are disclosed on your statement, making it harder for processors to tack on hidden extra fees. In the end, you pay exactly what Visa and MasterCard are charging, based on the type of card your customer is using.

Tiered pricing, on the other hand, generalizes many processing rates into three basic tiers: qualified, mid-qualified, and nonqualified. The credit card processor will define the tiers based on standard sets of criteria.

Examples of this include:

  • Same day processing for transactions
  • Card-not-present vs. card-present transactions
  • Category of purchases in a transaction

Flat pricing can be described as a rate determined by taking the average of the three tiers in tiered pricing and charging the result as a flat price.  Understandably, this rate is generally higher than what you would pay under a tiered plan unless the bulk of your transactions come from the highest cost tier.

Is interchange plus right for your business?

Interchange plus was once only available to large businesses with high sales volumes. Now, though, more processors are offering interchange plus pricing to small businesses.

Keep in mind that with interchange plus, your monthly credit card processing fees will vary month to month. If you’re a smaller business and want to pay the same amount each month, a fixed rate might seem more appealing.

However, you’re more likely to save money with interchange plus as you can see the charges on your statement. And because of the transparency of interchange plus pricing, companies will typically offer you a more competitive rate in the long run.At the end of the day, the pricing structure you choose will be based on factors only you can prioritize. We have many options to choose from. Give our Payment Experts a call and we’ll be happy to find the best solution to fit your needs.

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