by Ben Dwyer Interchange plus pricing is a credit card processing pricing structure that separates the components of processing, costs allowing for transparent reporting and interchange optimization.
- What is interchange plus pricing?
- How does it work?
- What are the benefits of interchange plus?
- Is interchange plus the best pricing model?
- Where can I get it?
What is interchange plus?
Interchange plus is the term used to describe a merchant account pricing model where a fixed markup is applied directly to interchange fees published by Visa, Mastercard, and Discover.
We have an article that covers interchange fees in greater detail, but for the sake of this article, think of interchange fees as wholesale credit card processing fees.
You can view the current interchange fees by following the links below to Visa and MasterCard’s Web sites:
Visa interchange rates
Mastercard interchange rates
Interchange = Credit card processing rates set by the card brands (Visa, Mastercard, Discover).
The word “plus” refers to the processor’s markup that is applied to each credit card transaction. The markup is typically expressed as basis points (explained below) accompanied by an authorization fee.
Basis Points
A basis point is equal to 1/100th of a percentage point. As you will learn in a moment, a processor’s markup is typically measured in basis points. However, any percentage-based fee can be expressed in basis points. For example, Visa’s current interchange fee for a swiped consumer credit card is 1.54% plus a transaction fee of $0.10. Measured in basis points, this fee would be one hundred and fifty four basis points (1.54% = 154 basis points).
Is interchange plus X basis points competitive?
So, you’ve received a quote from a credit card processor and you want to know if the basis point markup that you’ve been quoted is competitive. We’ve outlined the basics below, and also have an article about what is a good interchange plus rate.
Well, for starters, you’re on the right path since you have a quote based on an interchange plus. However, it’s extremely important to look at the big picture when comparing credit card processors. If you simply focus on the basis point markup, the transaction fee, or another individual fee, you’re setting yourself up for failure. What you really want to focus on is the effective rate for each quote.
Many factors such as business type, processing method, owner credit worthiness and others are used to determine the basis point markup that a processor offers. For example, a quote of interchange plus 25 basis points would be competitive for a bail bonds company, but average for a retail business.
Competition will also vary depending of where you’re getting quotes. For example, a local bank or sales agent will quote much higher rates than you will receive here at CardFellow. In fact, even the processors we work with always quote higher rates outside of CardFellow than they do in our marketplace.
Here’s a table that shows percentage to basis point conversion from zero to fifty in increments of five. The decimal representation is multiplied by gross sales to determine the processor’s volume-based markup.
| Basis Points | Percentage | Decimal |
|---|---|---|
| 5 Basis Points | 0.05% | 0.0005 |
| 10 Basis Points | 0.1% | 0.001 |
| 15 Basis Points | 0.15% | 0.0015 |
| 20 Basis Points | 0.2% | 0.002 |
| 25 Basis Points | 0.25% | 0.0025 |
| 30 Basis Points | 0.3% | 0.003 |
| 35 Basis Points | 0.35% | 0.0035 |
| 40 Basis Points | 0.4% | 0.004 |
| 45 Basis Points | 0.45% | 0.0045 |
| 50 Basis Points | 0.5% | 0.005 |
Authorization Fee
An authorization fee is technically referred to as an authorization request fee and it’s charged each time a business sends a transaction to their customer’s issuing bank to be authorized.
Plus = A fixed markup consisting of basis points and an authorization fee.
Combining the previous two explanations gives us with the following definition of this credit card processing pricing model.
Interchange plus = Base credit card processing rates with a fixed markup typically consisting of basis points and an authorization fee.
As a side note, interchange plus is sometimes referred to as “pass through pricing.”
How does the interchange plus pricing work?
Interchange plus pricing works much like the name implies – by applying a fixed markup to Visa, Mastercard or Discover’s interchange fees.
The markup applied to a credit card transaction often has two components: one is expressed as basis points and the other as an authorization fee.
The type of card being used (debit, credit, personal, business, etc.), the way a card is processed (online, swiped through a machine, etc.) and other variables combine to determine which interchange category a transaction qualifies to, and ultimately the amount of the final charge.
The markup assessed to a transaction is the same regardless of which interchange category a transaction qualifies to. The interchange charges and markup combine to yield the merchant discount fee, which is the merchant’s cost to process the transaction.
What are the benefits of interchange plus?
Interchange plus is the most transparent, cost-effective form of merchant account pricing. The separation of processing costs with interchange plus also allows for the optimization of interchange expenses.
By passing interchange fees directly to businesses with a fixed markup, surcharges and hidden costs are generally eliminated.
The cost of interchange plus processing will depend on the markup. However, generally speaking, interchange plus pricing will yield a substantial savings over the same processing volume when compared to other pricing models such as tiered or enhanced recover reduce (ERR).
That said, interchange plus pricing can still be manipulated. As we describe in this article, interchange plus is not a silver bullet.
Is interchange plus the best merchant account pricing?
Interchange plus is the most desirable form of merchant account pricing both for its transparency and potential to allow for lower costs. That’s why processors have to quote interchange plus pricing here at CardFellow.
However, as information about interchange plus has spread we have seen businesses begin to mistake pricing model as a solution to high credit card processing fees. This is a dangerous misconception. As noted above, interchange plus has the potential to yield competitive processing fees. It’s by no means a guarantee. As we’ve explained in the article below, it’s just as easy for a processor to gouge a business via interchange plus as it is with other pricing models, such as bundled/tiered:
Interchange-plus: You can still get gouged!
Where can I get interchange plus pricing?
Sign up free at CardFellow to receive multiple interchange plus processing quotes to find the best credit card processor for your business. Each quote comes complete with a comprehensive credit card processing cost analysis.
What companies offer the best Interchange Plus credit card processing/gateway plan?
Hi Stephanie,
You will find the lowest interchange plus pricing in the quotes you receive here at CardFellow. Simply sign up for free to receive instant quotes from multiple credit card processors.
– Ben
Intrepid Payment Processing. No service contracts either.
Intrepid Payment Processing has bad reviews on BBB. An excerpt:
3 year contract with $495.00 cancel fee (2nd to last page of application). Plus $78 monthly fee.
Doesn’t sound like a good option to me – maybe you work for them?
Pingback: American Express OptBlue
Payment Depot is a great interchange plus company!
Well written, good info. Its like – Interchange Plus and Credit Card Processing Fees for Dummies! Thanks so much, Ben