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How Interchange-Plus Pricing Works in Credit Card Processing

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Merchant Account Interchange-Plus Pricing Explained

In the complex world of credit card processing, few pricing models are as straightforward, or as misunderstood, as Interchange-plus. If you’re a small business owner, or simply curious about how your local coffee shop pays for each swipe of your card, this guide breaks down the basics of Interchange-plus in plain language.

What Is Interchange-Plus?

At its core, Interchange-plus pricing is the most transparent way for processors to charge businesses for credit card transaction. It separates the cost for each transaction into two parts:

  1. Interchange Fees: These are non-negotiable fees set by card networks like Visa and Mastercard. They go to the bank that issued the customer’s credit card. You can think of Interchange as the “wholesale” cost of credit card processing.
  2. Processor Markup (the “Plus” part): This is what your payment processor (like Square, Stripe, or First Data) adds on top of Interchange. It is the profit or “margin” the processor makes for routing the transaction and managing a the client’s merchant account; the type of account that allows a business to accept credit cards.

Unlike bundled pricing models that hide these components in a set of pricing tiers or one flat-rate, Interchange-plus shows you the cost of Interchange for each card transaction. This makes it easier to understand the true costs behind taking a credit card.

Real-World Example

Imagine you run a sandwich shop. A customer buys a $10 sandwich and pays with a Visa credit card.

Here’s how Interchange-plus pricing might break down:

  • Interchange fee (Visa sets this): 1.7% + $0.10 = $0.27
  • Processor markup (your negotiated rate): 0.30% + $0.10 = $0.13
  • Total fee: $0.27 + $0.13 = $0.40

That means you keep $9.60 of the $10 sale.

Every transaction may have a slightly different interchange rate depending on the card type (debit vs. credit, rewards card vs. standard), how the card is entered (chip, tap, online), and even your industry. But the processor’s markup stays consistent over Interchange with Interchange-plus stays the same.

Why Businesses and Experts Prefer It

Many businesses choose Interchange-plus because of its transparency and lower processing costs. With bundled or flat-rate models, you might pay 2.75% on every transaction regardless of the card. That’s easy to understand but often more expensive.

With Interchange-plus, you know:

  • Exactly how much the card brands are charging
  • Exactly what your processor is charging
  • Whether you can negotiate better terms with other processors on an apple-to-apples comparison.

Potential Drawbacks

Transparency has its price: complexity. Your monthly statement may look a lot more complicated because it lists every transaction and every rate and fee. Some processors organize the data in easy to decipher formats while others make it nearly impossible fully understand how each transaction is getting charged. Complicated statements can be overwhelming and frustrating. If your processor’s statement is overly complicated or disorganized, it may be a sign to start shopping for a new merchant account or team up with a payment cost consultant who can help you optimize your processing costs.

Who Should Use It?

Interchange-plus pricing is best for:

  • Businesses that process more than $5,000 per month
  • Merchants with a varied customer base using different card types
  • Anyone who wants to a clear view into processing costs to negotiate lower costs

If you’re brand new or handling only a few transactions, a flat-rate processor might be simpler until your volume grows.

Bottomline

Credit card processing can feel like learning a foreign language. But Interchange-plus pricing offers a window into where your money is going and empowers you to take control of your processing costs.

It might not be the right fit for every business, but for those willing to take a closer look, the rewards can be real. In a world where every penny counts, knowing exactly what you’re paying for is more than a good deal. It’s good business.

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