15 Sep How Interchange-Plus Pricing Actually Works
If you’ve ever compared two merchant statements and wondered why your “low rate” processor is charging more than a competitor with a higher advertised rate, the answer usually comes down to pricing model. Interchange-Plus is the one pricing structure that lets you see exactly what you’re paying for — and exactly what your processor is keeping.
What interchange actually is
Every time a customer taps, dips, or keys in a card, a small percentage of that transaction goes to the bank that issued the card. This is called the interchange fee, and it’s set by Visa, Mastercard, Amex, and Discover — not by your processor. It varies by card type: a rewards credit card typically costs more to accept than a plain debit card, because the issuing bank is funding those points and cashback out of that fee.
No processor can change interchange. What they can change is the markup they add on top of it — and that markup is where pricing models start to differ wildly.
“With Interchange-Plus, the rate you’re quoted and the rate you actually pay are, for the first time, the same conversation.”
Flat-rate vs. Interchange-Plus
A flat-rate processor charges you the same rate — say, 2.9% — no matter what card is used. It’s simple to understand, but it means you’re overpaying on debit and basic credit cards to subsidize the cost of premium rewards cards, and the processor pockets the difference.
Interchange-Plus pricing passes the real interchange cost straight through to you, then adds one small, published margin on top — often something like +0.30% + $0.08 per transaction. You can see both numbers separately on your statement. As your monthly volume grows, that margin typically shrinks automatically, because processing more transactions costs the processor less to service per transaction.
What this looks like on a real transaction
Say a customer pays with a standard rewards credit card that carries a 2.10% interchange rate. Under Interchange-Plus with a 0.30% + 8¢ margin, a $100 sale costs you $2.10 (interchange) + $0.30 (margin) + $0.08 (per-transaction fee) = $2.48 total, or a 2.48% effective rate. On a lower-cost debit card with a 0.80% interchange rate, the same transaction might cost you closer to 1.18% — savings you’d never see under a flat 2.9% rate.
This is also why an “average effective rate” quoted by a processor is only ever an estimate: your actual blend depends on the mix of card types your specific customers use.
No Comments