What Is a Good Interchange Plus Rate?

Payment processing fees are important for any business accepting electronic payments. Interchange Plus is a common pricing model that offers transparency into these fees. This article explains the components of an Interchange Plus rate and how to identify a favorable rate for your business.

What is Interchange Plus Pricing?

Interchange Plus pricing is a transparent model for processing electronic payments. Under this structure, a merchant pays the direct cost of a transaction, which includes interchange fees and assessment fees, along with a separate, fixed markup from their payment processor. This clear separation allows businesses to see what they pay to card networks and what they pay to their processor.

This model contrasts with less transparent pricing structures, such as tiered or bundled pricing. Tiered pricing categorizes transactions into different rate buckets, which can obscure true costs. Bundled pricing combines all fees into a single percentage, making it difficult to discern individual costs. Interchange Plus provides clarity on transaction costs.

Breaking Down Your Interchange Plus Rate

An Interchange Plus rate comprises three primary components: interchange fees, assessment fees, and the processor markup. Each component serves a distinct purpose in the payment processing ecosystem. Understanding these individual parts is fundamental to evaluating the overall cost of accepting electronic payments.

Interchange fees represent the largest portion of a transaction’s cost and are paid to the card-issuing bank. These fees are set by major credit card networks, such as Visa, Mastercard, Discover, and American Express. The specific rate varies based on card type, transaction nature, business industry, and data supplied. For example, premium rewards cards incur higher fees than standard debit cards. Card-present transactions have a lower interchange rate than keyed-in or online transactions due to reduced fraud risk. These fees are non-negotiable by the payment processor, as they are determined by the card networks.

Assessment fees are another component set by the card networks, paid directly to the networks themselves. These fees are typically a small percentage of the total transaction volume. Visa and Mastercard, for instance, levy their own assessment fees. These fees contribute to the operational expenses of the card networks.

The processor markup is the fee charged by the payment processor for their services. The processor’s markup can be structured in various ways, such as a percentage of the transaction volume, a fixed per-transaction fee, or a combination of both. This markup covers the processor’s operational costs, technology, customer support, and profit. The processor markup is the only negotiable part of an Interchange Plus rate, making it the primary focus for businesses seeking to reduce their processing costs.

Factors Influencing Interchange Plus Rates

The actual rates businesses pay under an Interchange Plus model are influenced by a variety of factors related to both the transaction itself and the business’s operational profile. These factors determine specific interchange fees and the negotiable processor markup.

Several specific variables cause interchange fees to differ across transactions. The type of card used is a significant determinant; premium rewards or corporate cards typically carry higher rates than standard consumer debit or credit cards. The transaction environment also plays a substantial role, as card-present transactions are generally deemed lower risk and incur lower fees than card-not-present transactions (e.g., online purchases or keyed-in orders). Providing enhanced transaction data (Level 2 or Level 3) for B2B or B2G transactions can qualify for lower rates by offering more detailed information, which reduces perceived risk. The merchant’s industry type also influences interchange rates.

Monthly processing volume is a primary consideration for the processor markup; higher volumes often lead to lower percentage markups or per-transaction fees. Average transaction size affects the markup, as processors may structure fees differently for many small transactions versus fewer large ones. The business’s industry type impacts the markup, with higher-risk industries potentially facing higher fees. The range of services included (e.g., payment gateway access, reporting tools, fraud prevention, or dedicated customer support) can also justify a higher markup. The overall competitiveness of the payment processing market influences pricing, as processors adjust markups to attract and retain clients.

Identifying a Favorable Interchange Plus Rate

Determining what constitutes a “good” or favorable Interchange Plus rate is not a one-size-fits-all answer; it is highly dependent on a business’s unique transaction profile and operational needs. A rate that is competitive for one business may not be for another, due to differences in transaction volume, average ticket size, and customer payment methods.

When evaluating a processor’s quote or existing statements, businesses should pay close attention to the detailed breakdown of fees. A transparent quote will clearly list the interchange rates, assessment fees, and the specific processor markup, distinguishing between percentage-based and per-transaction fees. On a monthly statement, businesses should identify the total interchange and assessment costs passed through, as well as the distinct charges from the processor. Be cautious of vague line items or “hidden” fees that are not clearly itemized, as these can significantly increase the overall processing cost.

Calculating your effective processing rate provides a useful benchmark for comparison. This is achieved by dividing total processing fees for a given period by total processing volume for the same period. For example, if you paid $100 in fees on $2,000 in sales, your effective rate is 5%. While this calculation offers a quick overview of your overall cost, it does not reveal the transparency of the pricing model or break down the individual components that contribute to that rate.

To identify a favorable rate, businesses should obtain multiple quotes from different payment processors. When comparing offers, focus on the processor markup, as this is the only negotiable component. Evaluate the percentage markup, per-transaction fees, monthly fees, PCI compliance fees, and other administrative charges. A lower percentage markup might still result in higher overall costs if there are numerous additional fixed fees.

Businesses should consider negotiating with processors, especially with consistent, high processing volume. Leveraging transaction history and projected volume can help secure a more competitive processor markup. Carefully review contract terms, including early termination fees, automatic renewals, or rate increase clauses, as these can impact the long-term cost and flexibility of the agreement.