What Is Interchange Plus Pricing for Payment Processing?

Businesses frequently accept credit and debit card payments, a consumer expectation that comes with associated payment processing fees. Understanding these fees is important for effective financial management. Among various pricing structures, “Interchange Plus” is a common and often favored model for these transaction costs.

Defining Interchange Plus

Interchange Plus pricing is a transparent model for credit and debit card processing fees. It clearly separates the actual cost of a transaction from the markup charged by the payment processor. This structure allows businesses to see precisely what they are paying for each part of the transaction fee. Interchange Plus distinguishes between non-negotiable fees set by card networks and negotiable service fees from the processor.

The model’s name highlights its two distinct components: the “interchange” fee and the “plus” or markup. The interchange fee represents the fundamental cost of the transaction, while the “plus” signifies the additional fee the payment processor charges for its services. This clear breakdown helps businesses understand their costs, promoting better financial management.

The Interchange Component

The “interchange” fee is a core element of credit and debit card processing, representing the largest portion of transaction costs. These fees are set by major card networks like Visa, Mastercard, Discover, and American Express, and are paid to the card-issuing bank. Interchange fees compensate issuing banks for providing and maintaining payment cards, managing accounts, handling credit risk, and funding customer rewards programs.

Interchange rates are complex and vary based on numerous factors. The type of card used significantly influences the rate; rewards, business, or premium credit cards typically incur higher fees than standard debit cards due to increased benefits or risk. Debit card interchange fees, particularly in the U.S., are generally lower and have been subject to regulation, with caps set by the Durbin Amendment for larger banks. How a transaction occurs also impacts the fee: card-present transactions usually have lower fees than card-not-present transactions due to higher fraud risk.

The merchant’s industry, identified by a Merchant Category Code (MCC), influences interchange rates, reflecting varying levels of risk and average transaction sizes. Transaction size also plays a role, as interchange fees are often calculated as a percentage of the amount plus a fixed fee, meaning larger transactions incur higher absolute fees. Processing details, such as batching time or manual entry, can also affect the rate, potentially increasing it for higher-risk scenarios. These rates are non-negotiable for both the payment processor and the merchant, and are generally publicly available from the card networks.

The Plus Component

The “plus” in Interchange Plus refers to the markup charged by the payment processor. This fee covers services like facilitating transactions, providing technology infrastructure, customer support, and managing data movement between banks and card networks. Unlike interchange fees, this component is entirely controlled by the payment processor and is negotiable. Businesses can often negotiate a lower markup, especially with higher transaction volumes.

This markup is typically structured in a few common ways. It can be a fixed percentage above the interchange fee (e.g., Interchange + 0.10%), a fixed per-transaction fee (e.g., Interchange + $0.05), or a combination of both (e.g., Interchange + 0.10% + $0.05 per transaction). This markup represents the processor’s profit margin for their services.

Beyond the “plus” component, businesses may encounter other distinct fees on their processing statements. These can include monthly statement fees, gateway fees for online transactions, PCI compliance fees, and network assessment fees charged by the card networks. These additional costs are separate from the processor’s markup and should be considered when assessing overall processing expenses.

Assessing Interchange Plus Proposals

When evaluating Interchange Plus proposals, businesses should focus on several aspects to secure a favorable agreement. The primary area for scrutiny is the “plus” component, as this represents the processor’s negotiable markup. Comparing the percentage and per-transaction fees of the “plus” across providers can reveal competitive differences. Businesses should also inquire about any volume discounts that might apply as transaction volume increases, which can further reduce costs.

However, looking solely at the “plus” markup is insufficient for a comprehensive assessment. It is important to identify and understand all other fees listed on a proposal or sample statement. These can include monthly service fees, PCI compliance fees, annual fees, gateway fees for online transactions, and chargeback fees. Network assessment fees, charged by card networks (e.g., Visa, Mastercard) for using their infrastructure, are also distinct from interchange and processor markups and should be accounted for. These assessment fees typically range from 0.12% to 0.15% of the transaction amount.

To truly understand the cost, businesses should calculate the total effective rate by considering all charges relative to their total processing volume. This involves summing all fees paid and dividing by the total sales processed. Requesting a detailed breakdown of all potential costs, including any minimum monthly fees or less common charges, allows for a transparent comparison. This comprehensive approach enables businesses to make informed decisions and choose a payment processing partner that aligns with their operational needs and financial goals.