Interchange Plus pricing has become one of the most popular pricing models for businesses seeking transparency and cost-effectiveness in credit card processing. This model is widely regarded as a fairer and more transparent way for businesses to handle transaction fees, as it breaks down the costs associated with processing payments, providing merchants with a clearer picture of what they are paying.

In this comprehensive guide, we will delve into the intricacies of Interchange Plus pricing. We’ll explore what it is, how it works, the benefits it offers to businesses, and how it compares to other pricing models. Additionally, we will discuss key factors to consider when evaluating whether Interchange Plus pricing is right for your business and how to negotiate the best rates with your payment processor.

What Is Interchange Plus Pricing?

Interchange Plus pricing is a credit card processing pricing model in which merchants pay the actual interchange fees set by the credit card networks (such as Visa, Mastercard, and American Express) plus a fixed markup fee charged by the payment processor. The interchange fee is determined by the card networks, while the “plus” is the agreed-upon markup that the payment processor charges for facilitating the transaction.

Unlike other pricing models, such as tiered or flat-rate pricing, Interchange Plus provides transparency because the merchant sees exactly how much they are paying in interchange fees and how much the processor is charging for its services.

Breaking Down the Components of Interchange Plus Pricing

1. Interchange Fees: These are the fees paid to the card-issuing bank for processing the transaction. The card networks (Visa, Mastercard, Discover, etc.) set the interchange rates based on various factors, including the type of card used, the transaction method (in-person or online), and the business industry. Interchange fees are typically a percentage of the transaction amount plus a fixed fee (e.g., 1.80% + $0.10).
2. Processor Markup (the “Plus”): This is the fee charged by the payment processor for handling the transaction. This markup is typically a small fixed percentage and/or a flat fee (e.g., 0.20% + $0.10). The processor markup remains the same regardless of the type of transaction or card used.

For example, if you’re processing a transaction where the interchange fee is 1.80% + $0.10 and the processor markup is 0.20% + $0.10, the total cost for the transaction would be 2.00% + $0.20.

How Interchange Plus Pricing Works

To understand how Interchange Plus pricing works in practice, let’s go through the process step-by-step:

1. Transaction Initiation: A customer makes a purchase using a credit or debit card, and the transaction is submitted to the payment processor.
2. Interchange Fee Determination: The card network (e.g., Visa or Mastercard) determines the applicable interchange fee based on the type of card (credit, debit, rewards card), the transaction method (in-person, online, or phone), and the merchant’s industry. The card-issuing bank receives this fee.
3. Processor Markup: The payment processor applies its fixed markup (the “Plus” part), which is added to the interchange fee.
4. Total Fee Calculation: The merchant pays the total of the interchange fee and the processor’s markup. The payment processor deducts these fees from the transaction amount before transferring the remaining funds to the merchant’s bank account.

Example of Interchange Plus Pricing

Let’s say a customer makes a $100 purchase at your store using a Visa rewards credit card. The interchange fee for this transaction is 1.80% + $0.10, and your payment processor’s markup is 0.20% + $0.10. The total fee for the transaction would be:

• Interchange Fee: 1.80% of $100 = $1.80 + $0.10 = $1.90
• Processor Markup: 0.20% of $100 = $0.20 + $0.10 = $0.30
• Total Cost: $1.90 + $0.30 = $2.20

The merchant pays $2.20 in fees for this $100 transaction, and the remaining $97.80 is deposited into the merchant’s bank account.

Benefits of Interchange Plus Pricing

Interchange Plus pricing offers several key benefits, particularly for businesses that process a high volume of credit card transactions. Here are some of the main advantages:

1. Transparency

One of the biggest advantages of Interchange Plus pricing is its transparency. Merchants can see exactly how much they are paying in interchange fees (which are non-negotiable) and how much they are paying to their processor. This level of transparency helps businesses better understand their processing costs and ensures there are no hidden fees.

2. Lower Overall Costs for High-Volume Merchants

For businesses that process a large volume of credit card transactions, Interchange Plus pricing often results in lower overall fees compared to tiered pricing models. In tiered pricing, transactions are grouped into different categories with varying rates, which can result in higher fees for certain types of transactions. With Interchange Plus, merchants pay the actual cost of processing each transaction plus a fixed markup, which can lead to savings over time.

3. Fairness Across Transaction Types

With Interchange Plus pricing, the fees you pay are based on the actual cost of each transaction, which means you’re not paying more than necessary for certain types of transactions. For example, debit card transactions typically have lower interchange fees than credit card transactions. With tiered pricing, these differences are often hidden, and merchants may end up overpaying for low-cost transactions. Interchange Plus ensures that you pay exactly what each transaction costs.

4. Flexibility for Growing Businesses

Interchange Plus pricing is scalable, making it an ideal option for businesses that expect to grow over time. As your transaction volume increases, you can negotiate better processor markups, allowing you to save on fees as your business grows.

Interchange Plus Pricing vs. Tiered Pricing

To understand why many businesses prefer Interchange Plus pricing, it’s essential to compare it with other pricing models, particularly tiered pricing, which is one of the most common alternatives.

Tiered Pricing

In a tiered pricing model, the payment processor groups transactions into different tiers, usually “qualified,” “mid-qualified,” and “non-qualified.” Each tier has a different rate, and the rate applied depends on factors such as the type of card used (e.g., debit, credit, rewards) and how the transaction is processed (in-person, online, or over the phone).

• Qualified Transactions: These are typically the lowest-cost transactions and may include standard credit cards used in-person.
• Mid-Qualified Transactions: These transactions often include rewards cards or transactions where the card is not present (such as online purchases).
• Non-Qualified Transactions: These are the most expensive transactions, often including corporate cards or international transactions.

While tiered pricing may seem simpler, it often lacks transparency. Merchants are not always aware of which transactions fall into each tier, and processors may set high rates for mid-qualified and non-qualified transactions.

Key Differences Between Interchange Plus and Tiered Pricing

• Transparency: Interchange Plus is more transparent, as merchants can see the exact breakdown of fees. Tiered pricing, on the other hand, groups transactions into tiers, making it harder to understand the true cost of each transaction.
• Cost: For high-volume merchants, Interchange Plus pricing is generally more cost-effective because you pay the actual interchange fees plus a fixed markup, rather than potentially inflated tiered rates.
• Flexibility: Interchange Plus allows businesses to benefit from lower interchange fees for certain transaction types (e.g., debit cards). In contrast, tiered pricing may group all transactions into higher-cost tiers, regardless of the true cost.

Factors That Influence Interchange Fees

Understanding what factors influence interchange fees is essential for businesses using Interchange Plus pricing. Several factors can affect the cost of each transaction, including:

1. Card Type

Different types of cards have different interchange rates. For example, rewards cards and corporate credit cards typically have higher interchange fees than standard debit cards due to the additional benefits they offer cardholders.

2. Transaction Method

The way a transaction is processed can also impact interchange fees. In-person (card-present) transactions generally have lower interchange fees than online (card-not-present) transactions because the risk of fraud is lower when the card is physically present.

3. Merchant Industry

Interchange fees can vary based on the industry in which the merchant operates. For example, certain industries, such as retail or hospitality, may have lower interchange fees than industries like travel or high-risk e-commerce businesses.

4. Transaction Amount

Interchange fees are often a combination of a percentage of the transaction amount and a fixed fee. Therefore, higher-value transactions will result in higher interchange fees, though the fixed fee component remains the same.

Negotiating Interchange Plus Rates with Payment Processors

While interchange fees are set by the card networks and are non-negotiable, merchants can negotiate the “Plus” portion of Interchange Plus pricing with their payment processor. Here are some tips for negotiating better rates:

1. Leverage Transaction Volume

If your business processes a high volume of transactions, you may be able to negotiate lower processor markups. Payment processors are often willing to offer discounts to high-volume merchants because they generate more revenue from your transactions.

2. Compare Multiple Processors

It’s essential to shop around and compare different payment processors before committing to one. Different processors may offer different markups, and by comparing offers, you

can ensure that you’re getting the best deal possible. Request quotes from multiple processors and ask for a detailed breakdown of the fees, including the interchange rates and the processor’s markup.

3. Understand the Fee Structure

Make sure you fully understand the fee structure before negotiating. Ask your processor to explain the breakdown of the fees, including how interchange fees are determined for your specific industry and transaction types. Clarify whether there are any additional fees, such as monthly fees, setup fees, or PCI compliance fees, and include these in your negotiations.

4. Look for Value-Added Services

While negotiating lower fees is important, it’s also essential to consider the value-added services that the processor offers. For instance, some payment processors provide fraud protection, chargeback management, and detailed reporting tools, which can save you money in the long run. These services can justify slightly higher processor markups if they lead to cost savings elsewhere in your operations.

5. Ask About Volume-Based Discounts

Some payment processors offer volume-based discounts, meaning that if your transaction volume increases over time, you may qualify for lower processor markups. Be sure to ask about any potential discounts or savings opportunities as your business grows.

How to Choose the Right Payment Processor for Interchange Plus Pricing

When selecting a payment processor for Interchange Plus pricing, it’s important to consider several factors to ensure that you’re getting the best deal for your business. Here are some steps to guide you through the process:

1. Evaluate Your Transaction Volume and Business Model

Start by analyzing your transaction volume and the types of transactions your business typically processes. For example, do you handle more in-person transactions or online purchases? Are most of your transactions low-value or high-value? Understanding your business model and transaction volume will help you choose a processor that offers competitive pricing for your specific needs.

2. Research Multiple Processors

It’s crucial to shop around and research multiple payment processors to compare their Interchange Plus pricing options. Ask for detailed quotes that clearly outline the processor’s markup and any additional fees, and compare them side by side. Don’t hesitate to ask for customer testimonials or reviews from other businesses in your industry to get an idea of the processor’s reliability.

3. Consider Customer Support and Integration

Customer support and ease of integration are important factors when choosing a payment processor. Look for a processor that offers 24/7 customer support and multiple channels for resolving any issues that may arise. Additionally, ensure that the processor’s payment system integrates seamlessly with your existing point-of-sale (POS) system, e-commerce platform, or other software tools.

4. Check for PCI Compliance and Security Features

Security is essential when processing payments, so ensure that the payment processor complies with PCI DSS (Payment Card Industry Data Security Standard) requirements. Additionally, look for processors that offer advanced fraud detection, encryption, and tokenization to protect your business and customers from data breaches and fraudulent transactions.

5. Negotiate the Terms

Once you’ve chosen a few processors that meet your criteria, start negotiating the terms. Be clear about your transaction volume and any specific needs your business may have, and use this information to negotiate better rates or additional services. Don’t be afraid to ask for custom pricing if you expect your business to grow rapidly.

Common Misconceptions About Interchange Plus Pricing

Although Interchange Plus pricing is one of the most transparent and cost-effective pricing models, there are several misconceptions surrounding it. Here are some common myths about Interchange Plus pricing:

1. “It’s Always Cheaper Than Other Pricing Models”

While Interchange Plus pricing is often more transparent and cost-effective than tiered pricing for high-volume businesses, it’s not always the cheapest option for every business. Some low-volume businesses may benefit from flat-rate pricing if they process fewer transactions or lower amounts. It’s important to assess your specific transaction patterns before deciding whether Interchange Plus pricing is the best fit.

2. “All Processors Offer the Same Interchange Rates”

The interchange fees set by card networks like Visa and Mastercard are the same across all processors, but the processor’s markup—the “Plus” portion of the fee—can vary widely between different payment processors. It’s important to negotiate the best possible markup with your processor.

3. “Interchange Fees Are Fixed for All Transactions”

Interchange fees vary depending on several factors, such as the type of card used (credit, debit, rewards), the method of payment (in-person, online, or phone), and the merchant’s industry. While Interchange Plus pricing gives you a clear breakdown of these fees, it’s important to understand that interchange fees are not static and can vary between transactions.

FAQs

Q1: How is Interchange Plus pricing different from flat-rate pricing?

Interchange Plus pricing separates the interchange fee (set by the card networks) from the processor’s markup, providing transparency in how much you pay for each component. Flat-rate pricing charges a single, consistent fee per transaction, regardless of the actual interchange fee. Interchange Plus pricing is often more cost-effective for businesses with high transaction volumes, while flat-rate pricing may be simpler for low-volume merchants.

Q2: Can I negotiate Interchange Plus pricing with my payment processor?

Yes, you can negotiate the processor’s markup (the “Plus” part) with your payment processor, especially if your business processes a high volume of transactions. However, interchange fees set by card networks are non-negotiable, as they are fixed costs.

Q3: What types of businesses benefit most from Interchange Plus pricing?

Interchange Plus pricing is particularly beneficial for businesses with high transaction volumes, businesses that process a wide variety of card types, and those that prefer transparent, detailed reporting of transaction costs. E-commerce businesses, retail stores, and restaurants often find that Interchange Plus pricing offers the most cost savings over time.

Q4: How can I calculate my total processing costs with Interchange Plus pricing?

To calculate your total processing cost, combine the interchange fee (set by the card networks) with the processor’s markup (the “Plus” fee). For example, if the interchange fee is 1.80% + $0.10 and the processor markup is 0.20% + $0.10, the total cost for a $100 transaction would be 2.00% + $0.20 = $2.20.

Q5: Are there any additional fees with Interchange Plus pricing?

While Interchange Plus pricing is transparent, some processors may still charge additional fees, such as monthly account fees, PCI compliance fees, or setup fees. It’s important to review your contract carefully to identify any extra charges and factor them into your decision-making process.

Conclusion

Interchange Plus pricing is a transparent and often cost-effective pricing model for businesses that process credit and debit card transactions. By providing a clear breakdown of interchange fees and processor markups, Interchange Plus allows merchants to better understand their processing costs and negotiate more favorable terms with payment processors. While it may not be the cheapest option for every business, it offers significant advantages for high-volume merchants and businesses seeking cost transparency.

When choosing a payment processor for Interchange Plus pricing, it’s important to evaluate factors such as transaction volume, security features, customer support, and pricing flexibility. By negotiating favorable terms and selecting a processor that meets your business’s needs, you can reduce your overall payment processing costs and improve your bottom line.

Ultimately, Interchange Plus pricing gives merchants the transparency and control they need to manage their credit card processing costs effectively, helping them grow and thrive in an increasingly competitive marketplace.