Interchange-Plus Pricing

One of the most confusing aspects of credit card processing for merchants is understanding interchange-plus pricing: how rates are set and where the money goes once it’s deducted from their sales.

Providers rely on a variety of pricing models, which vary from extremely simple and predictable to hopelessly complex and bewildering. Interchange-plus pricing lies somewhere in the middle of the complexity scale, but also offers the most transparency to merchants on where their money is going of any processing rate model available today. It’s also frequently the most affordable option overall, particularly if you have a relatively high monthly volume of credit and debit card sales.

In this article, we’ll explain what interchange-plus pricing is, how it works, and how it compares to the other types of pricing plans you might encounter.

If you are looking for a processor with the best rates, check out the best small business credit card processing companies to see what they offer first.

What Is Interchange-Plus Pricing?

Interchange-plus pricing (sometimes called cost-plus pricing) is a credit card processing rate model that separates costs into two elements: (1) interchange fees, and (2) processor markup.

Interchange fees (and associated network assessment fees) are passed through to the issuing bank and credit card association, while the markup is retained by your merchant account provider.

How Does Interchange-Plus Credit Card Processing Work?

With interchange-plus pricing, your processor deducts both interchange fees, which can be highly variable, and a markup, which is generally fixed, before transmitting funds from a sale to your merchant account. Depending on your merchant services provider, you might see these fees broken down individually on your monthly processing statement, or you might see just the total fee deducted.

Although interchange fees are paid to the bank that issued the customer’s credit card, they’re set by the major credit card associations (such as Visa and Mastercard). Interchange fees can get very complex, but generally reflect the overall level of risk presented by a given type of transaction. Factors affecting interchange fees include the following:

• Card brand (Visa, Mastercard, American Express, etc.)
• Credit or debit card (debit cards generally cost much less than credit cards)
• Card type (rewards card, corporate card, etc.)
• Card-present vs card-not-present transactions
• Payment security features used (tokenization, encryption, etc.)
• Merchant Category Code (MCC)

For a more in-depth look at this subject, please read our guide to merchant account & credit card processing fees. You can also look at the official interchange rates published online by Visa and Mastercard.

Here’s a quick example of how processing fees are calculated for a transaction under interchange-plus pricing:

You own a restaurant and have a merchant account. A customer comes in and orders $100.00 (including tax and tip) in food and drinks. He pays with a Mastercard World Elite Consumer credit card. The interchange cost is 2.00% + $0.10, or $2.10. Your merchant account provider passes this cost to you, plus it charges a markup of 0.20% + $0.10, or $0.30. Your total cost for taking the credit card is $2.40, or 2.4%.

Note that in this example, interchange fees account for a whopping 87.5% of your total processing cost.

In contrast, your merchant account provider only makes $0.30 on a $100 sale. This ratio is fairly typical of any credit card transaction, regardless of the pricing model being used.

How Does Interchange-Plus Compare To Other Pricing Plans?

Interchange-plus pricing is one of four common methods of determining processing costs in use by the payments industry today. The other three methods are (1) tiered pricing, (2) flat-rate pricing, and (3) subscription (or membership) pricing. Let’s examine how it compares to the other pricing methods that you may encounter:

Which Credit Card Processors Offer Interchange-Plus Pricing?

Most merchant service providers in the payments industry can offer you interchange-plus pricing, but not all of them will do so willingly. The availability of interchange-plus pricing is often not advertised, or available only to high-volume merchants. You may also have to negotiate which specific processing rate will apply to your account, with providers initially offering a rate plan with a high markup and hoping that you won’t ask for something lower.

In contrast, many of our top-rated credit card processors freely disclose the availability of interchange-plus pricing right on their websites, including which specific rates you’ll pay based on your existing monthly processing volume. Interchange-plus pricing may be offered exclusively to all users, or it may be one of several options available to you at your discretion. Here’s a brief list of our top credit card processors that offer interchange-plus pricing:

• Dharma Merchant Services
• Helcim
• Host Merchant Services
• National Processing
• CDGcommerce
• Clearly Payments

Should You Always Choose Interchange-Plus Pricing?

Interchange-plus pricing stands out as the most transparent and fair pricing model in the payments processing industry.

For the majority of our readers, it will also be the least expensive overall. Once available only to established, high-volume businesses, it’s now offered by most providers — although it’s not always advertised, and you may have to ask for it.

Interchange-plus pricing isn’t perfect, however. Your processor can still tack on an abnormally high markup on your transactions, although this will be easy to spot if you shop around and compare rate quotes from several providers before deciding which one to sign up with. Most providers also offer discounted rates to higher-volume businesses, so if you only process a modest monthly volume of credit/debit card sales, you might be stuck paying a higher markup. Overall, interchange-plus pricing works best in the following situations:

• Your business runs year-round and isn’t seasonal
• You process at least $5,000/month in credit/debit card sales
• You accept a lot of PIN debit transactions
• You can afford the monthly and annual fees that usually come with a full-service merchant account

As we’ve noted above, subscription pricing can be a better option for very high-volume merchants, as it eliminates the percentage-based markup on your transactions in exchange for a single monthly subscription fee. However, there are currently only a few providers in the industry that offer this type of pricing.

Finally, remember that your rate plan is only one part of the equation. While it might be the largest part of that equation, you also need to look closely at monthly and annual fees before signing up with any processor. The availability of interchange-plus pricing is not a guarantee that you’ll be getting the best overall deal.