Interchange Plus - True Transparency

Interchange Fees

Basically an interchange fee is the portion of a credit card sale transaction that’s paid by the merchant’s acquiring bank to the card issuer’s bank for their services. Interchange fees are set by the credit card brands (MasterCard, Visa, etc.) and they vary depending on several factors. A credit card that offers rewards may have a higher interchange fee than a standard credit card. And credit cards have higher fees than a debit card, considerably higher in most cases. Rates also vary depending on what services or products the merchant sells, and whether the card was presented in person at the time of the sale or if the purchase was made on-line. These fees are detailed on the credit card brand websites and they are the same for all merchants. As the merchant, you do not pay these fees directly; they are included in the fee structure you negotiate with your credit card processing company.

Now For the “Plus”

A credit card processing provider, commonly referred to as third party provider, accepts credit card payments on behalf of your company and transmits them for authorization and then again for payment. As we’ve said, all merchants pay the same interchange fees. But there are several ways for a credit card processor to charge for their services in addition to the interchange fees set by the credit card brands. That’s where the “Plus” comes into play in interchange plus pricing.

The “plus” refers to the provider’s markup added to each credit card transaction and a small assessment fee (usually between $0.10 and $0.15) which is a per transaction charge. The markup is a percentage of each sale based on a basis point system. A basis point is one one-hundredth of a percentage point. So 100 basis point would equal 1%. But what does that really mean to you?

Many factors are considered before a provider finalizes the amount of your basis point markup.

For example:

 1. What is your average monthly gross sales figure?
2. What type of business do you own/operate?
3. Do you sell more high ticket items but do less transaction per month or do you do more low dollar/high volume business?
4. Is your business classified as high risk?
5. How do you process your transactions? Are the majority of your transactions swiped at a point of sales terminal or are your transactions entered by hand through your on-line site?
6. What is your personal and business credit standing?

The higher your risk indicators, the higher your basis point number. So a low risk, general retailer could expect to be rated at about 25 basis points and add 0.25% and the per transaction assessment fee to the applicable interchange rate for each credit card they process. Whereas a business with higher risk indicators might be rated at 50 basis points and pay 0.5% plus the applicable interchange rate for each transaction.

What Are The Benefits of Interchange Plus Pricing?

Though this credit card pricing structure may seem complicated, it’s really not. Unlike other rate structures that have several different pricing categories, interchange plus has just two costs: the fixed interchange rate charged by the credit card associations and a flat markup and assessment fee for each transaction charged by your provider. So, for example, let’s say that retail business above does $20,000.00 worth of business in one month. Convert the 25 basis points to a percentage of 0.25% then multiple $20,000 by .0025 and you get $50.00. In other words, that retail merchant will pay $50.00 (and the per transaction fee) for the month over and above the total interchange fees for the month. Your monthly costs are boiled down to one simple formula.

Is Interchange Plus The Best Credit Card Processing Pricing

Structure For Your Business?

Merchants and providers both agree that interchange plus is the most transparent and most often the least expensive of the credit card processing rates available. But for many businesses today that process different types of credit cards, with a variety of different processing procedures from month to month, interchange plus may not be the least expensive alternative. When searching for a credit card processing provider, look beyond the low rate offers and be sure the rate structure you choose suits your needs now and can grow with your business.