What Is Interchange Plus Pricing and How Does It Work?
Gain clarity on payment processing costs. Explore transparent merchant pricing models and understand how different fee structures impact your business expenses.
Payment processing fees are a significant operational cost for businesses. Understanding these charges is crucial for managing cash flow and profitability. Deciphering transaction costs allows businesses to make informed decisions about payment processing partners and optimize expenses.
Understanding Interchange Plus Pricing
Interchange Plus pricing is a transparent credit card processing model, offering merchants a clear view of transaction costs. This structure directly passes through actual costs charged by card networks and issuing banks, separating them from the payment processor’s fee. It itemizes distinct charges for clarity.
This method involves three core components: interchange fees, assessment fees, and a processor markup. Each element is presented separately, allowing businesses to discern what goes to card networks and issuing banks versus what the processing company retains. This itemized approach contrasts with models that bundle costs, obscuring the true breakdown of expenses.
Components of Interchange Plus Pricing
Interchange Plus pricing is built upon three distinct elements, each contributing to the total transaction cost. These components are clearly delineated for merchant transparency.
Interchange fees are paid by the acquiring bank (merchant’s bank) to the issuing bank (cardholder’s bank) for processing credit or debit card transactions. Established by card networks like Visa and Mastercard, these fees are non-negotiable for processors and passed directly to the merchant without markup.
Several factors influence the interchange rate. These include the type of card used, the transaction type (e.g., card-present vs. card-not-present), merchant category code (MCC), transaction size, and security measures like EMV chip technology.
Assessment fees are direct costs charged by card brands, such as Visa and Mastercard, for network use. Calculated as a small percentage of total transaction volume, these fees are fixed by the networks and passed directly to the merchant without markup.
The processor markup is the fee charged by the payment processor for services like facilitating transactions, customer support, and reporting tools. This is the negotiable part of the Interchange Plus model. The markup can be a percentage, a flat per-transaction fee, a monthly service fee, or a combination.
Other Merchant Account Pricing Models
Beyond Interchange Plus, businesses encounter alternative pricing structures. Understanding these models provides context for appreciating Interchange Plus’s transparency. While simpler, they often obscure underlying costs.
Tiered pricing, also known as bundled pricing, categorizes transactions into predefined rate tiers like “qualified,” “mid-qualified,” and “non-qualified.” Each tier has a different processing rate, determined by factors like card type and transaction method. This model makes it challenging for merchants to predict exact costs, as interchange and assessment fees are not itemized.
Flat-rate pricing applies a single, fixed percentage rate to all transactions, regardless of card type or processing method. This model appeals to small businesses or those with low transaction volumes due to its simplicity and predictable cost. However, the single rate is often higher than what some transactions would cost under a transparent model, as it covers the highest potential interchange costs.