As a merchant, you'll likely encounter many pricing models that offer different benefits. However, few will be as transparent, flexible, and merchant-friendly as the interchange plus pricing model. This pricing model not only offers straightforward pricing but also cost-saving benefits for businesses that take in a large volume of transactions or diverse transaction types. In this article, we'll explore interchange plus pricing, how it works, and how it stacks up against other credit card processing fees.

What Is Interchange Plus Pricing?

Interchange plus pricing operates on a straightforward principle: businesses pay the interchange fee mandated by card networks plus a fixed markup determined by the payment processor. Unlike other pricing models, such as tiered or flat-rate pricing, interchange plus offers greater transparency. Merchants can discern the exact interchange rate and markup applied to each transaction without it being too complicated to calculate or constantly changing based on differing transaction amounts.

How Interchange-Plus Pricing Works

Interchange plus pricing is a clear and transparent method for calculating credit card processing fees. It consists of two main components:

First, the interchange fee is set by card networks like Visa and Mastercard. They set the fee depending on factors such as the type of card used and the processing method. These factors determine the interchange category that a transaction falls under. The specific category can vary depending on the card network.

The "plus" component refers to the payment processor's markup, known as the authorization fee. This markup is a fixed amount added to the interchange fee, making it easy for merchants to predict, as it doesn't change with the transaction type or category.

These fees—the interchange charges and the processor's markup—combine to form the total fee charged to the merchant. Payment processors often advertise their rates as 'Interchange + X,' where X is their fixed markup. This format allows merchants to compare different processors easily.

Overall, interchange plus pricing offers transparency, allowing merchants to understand exactly what they are being charged for each transaction. This clarity helps merchants create more accurate fee breakdowns, ensuring predictable and manageable costs.

What is a good Interchange Plus rate?

Determining a "good" interchange plus rate depends on several factors specific to your business, including your business's nature, transaction volume, and average ticket size. Competitive interchange-plus rates typically range from 0.20% to 0.50%, which are added to the base interchange fee.

However, it is crucial to look beyond the rates when choosing a payment processor. Assess the overall value proposition of each processor, considering aspects such as technological capabilities, integrations with other systems, customer service quality, and any additional fees that may apply.

Interchange Plus Pricing Compared to Other Pricing Models

Understanding how interchange-plus pricing compares to other models is important for merchants seeking optimal cost-efficiency and transparency. That said, let's see how some of the others operate. 

Interchange-Plus Vs. Tiered Pricing

Tiered pricing was once the industry standard for payment processing. The method categorized transactions into different tiers—typically qualified, mid-qualified, and non-qualified—with fees ranging from 1.4% to over 4%. While this model might seem simple, it allows payment processors considerable leeway to categorize transactions using opaque criteria, often in ways that maximize their revenue at the merchant's expense. Distinguishing between tiered and fixed prices can be challenging. Sales strategies and unclear disclaimers can obscure what qualifies as a "qualified" or "non-qualified" purchase, leading to a bait-and-switch situation where low rates entice business owners only to find most of their transactions fall under higher-cost categories.

In contrast, interchange-plus pricing is straightforward and consistent. The markup remains unchanged regardless of the transaction type, providing clear, predictable fees.

Interchange-Plus vs. Flat-Rate Pricing

Flat-rate pricing, popularized by providers like Square and Stripe, charges a uniform rate for all transactions regardless of the interchange category. For example, Square charges a flat rate of 2.75% for swiped, dipped, or tapped payments. However, this excludes keyed-in payments, where the fee goes up to 3.5% + $0.15.

This model is more predictable than tiered pricing but can be more costly for businesses with a high volume of debit card transactions. Since interchange and assessment fees for debit cards are typically lower, flat-rate pricing may inadvertently overcharge for these and premium credit card transactions.

Interchange-plus pricing, however, allows businesses to optimize costs based on transaction specifics and other factors such as business type, typical transaction volume, and industry. For businesses seeking transparency and simplicity, this pricing model typically offers the best value.

Is Interchange Plus the best pricing model?

Interchange plus pricing is highly favorable for merchants due to its transparency and potential cost saving benefits. However, choosing the "best" pricing model for your business depends on your specific needs and circumstances. For those with low transaction volumes, flat-rate pricing might be exactly what you need. However, for businesses that process a large and diverse range of transactions, the clarity and transparency offered by interchange plus pricing make it one of the most straightforward and popular options.

Benefits of Having Interchange Plus Pricing

The advantages of interchange plus pricing are:

• Separation of costs: By separating processing fees from the interchange rate, businesses can optimize their interchange expenses. This transparency allows merchants to easily discern the exact costs associated with each transaction, facilitating quick and straightforward comparisons between payment processors.
• Cost-efficiency: Interchange plus pricing ensures that businesses pay only the interchange fee plus a fixed markup. This model helps minimize unnecessary expenses and allows businesses to tailor their costs according to their specific type, industry, transaction volume, and other factors.
• Flexibility: This pricing model is versatile, accommodating businesses of all sizes and transaction volumes.

How to get Interchange Plus Credit Card Processing

Securing interchange plus credit card processing involves partnering with a reputable payment processor that offers robust merchant services. Here are the steps to follow:

1. Research Payment Processors: Start by researching reputable payment processors, particularly those that specialize in your industry and those that are known for their interchange plus pricing models — whether it's considered high-risk or not.
2. Obtain and Compare Quotes: Get quotes from these processors for a thorough cost comparison. Don’t just focus on interchange rates; also consider other important factors like customer service and additional merchant services such as fraud prevention tools and reporting capabilities.
3. Negotiate Terms: Finally, don’t forget to negotiate the terms. Ensure transparency regarding all fees and contractual obligations when you opt for interchange plus pricing.

Final Thoughts on Interchange Plus Credit Card Processing 

Interchange plus pricing is a transparent and cost-effective option for credit card processing fees, and businesses that embrace this model can navigate these fees with clarity and confidence. When shopping around for a payment partner, prioritize those with a transparent, straightforward approach to fees in order to make sure you always get the best for your business!