Interchange plus pricing is a model that’s often used by credit card processors to help determine the cost paid by merchants per transaction. It consists of two components, in turn the interchange fee put in place by the card network, and the markup, which – in contrast – is set by the credit card processor itself.
As well as interchange plus pricing, there’s interchange plus plus pricing. They’re both among the most transparent, balanced, and fair pricing models out there, but just how do they work? We’ll take a closer look here – keep reading for interchange plus pricing, explained.
Interchange plus pricing explained
In simple terms, interchange plus pricing breaks down the merchant service charge – the rate paid – into two components. The interchange is the cost from the issuing bank to the card network to you, and the plus, or markup, is the fee for processing the transaction. If a card network changes the rate of interchange fees on a card, that component of the merchant service charge changes automatically.
Costs vary depending on the cards your customers use, because the interchange fee – forming the first half of the equation, varies from card to card. Some cards might have an interchange fee that’s as low as 0.3% and 5p, while some could be as high as 2.3% and 10p – although this is just an example of interchange plus pricing.
Part of the cost of interchange plus pricing will usually include assessment fees. These fees are passed onto the card networks, but the fee will vary from card to card.
What about interchange plus plus pricing?
Interchange plus plus pricing isn’t a world away from interchange plus pricing, but there is a key difference. Here, the acquirer doesn’t only pass on the interchange, but the scheme fees from card networks too. Hence, there are three components: the interchange, the first plus – the acquirer’s fee – and the second plus – the card scheme fee. Scheme fees tend to be a lot lower than interchange fees, but can be determined by various factors, including the card and transaction type.
It’s not used as often as interchange plus pricing, but sometimes it’s used for even more transparency – you can see exactly what it is you’re being charged for.
Comparing Interchange plus pricing
Generally, the main options for credit card processing are interchange plus (and sometimes plus plus), tiered, and fixed pricing. We’ll compare interchange plus to both of them here, to help you decide which is best for your company.
Interchange plus vs tiered pricing
More often than not, tiered pricing is going to be worse for you than interchange plus pricing. Tiered pricing, unlike interchange plus pricing, isn’t as transparent – while it used to be standard, it’s falling out of popularity.
With tiered pricing, processing fees fit into one of three tiers, either qualified, mid-qualified or non-qualified – when processors use tiered pricing, they’ll often show the qualified transaction fee in a large font, with a disclaimer that it only applies for qualified purchases, which could be considered misleading.
Interchange plus vs flat rate pricing
In comparison, flat rate pricing is simpler and the interchange plus vs flat rate debate is one that businesses often have. With flat rate pricing, one fee is charged for all transactions, regardless of what your customers use to pay.
Flat rate pricing doesn’t differentiate and discriminate between different card types, but it can discriminate between the ways payments are accepted. The fee applied to keyed-in payments might be higher than the fee applied to swiped payments, but this isn’t unheard of with interchange plus pricing either. However, it tends to be cheaper than flat rate pricing, in particular for businesses with customers who use debit cards more often than not. On the other hand, flat rate pricing does make it easier to correctly predict your transaction costs from month to month.
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