by Ben Dwyer Asking the question “what is a good interchange plus rate?” is like asking the question “how much does a car cost?” Neither question can be answered accurately without first knowing several supporting details.
Interchange plus rates vary widely from one processor to the next. How competitive rates are will depend on your business’s processing profile and how you are gathering quotes.
It’s also important to understand that interchange plus is a form of pricing; it’s not a single rate. The percentage portion of the processing markup (the “rate”) may not be, and often isn’t, the most important fee in determining cost-effective credit card processing services.
Competitive Interchange Plus Rates
It’s tough to pinpoint what would be considered a low interchange plus rate without knowing details about a business’s processing profile.
Generally speaking, an established low risk retail business can expect rates in the area of .25%, and an established low risk e-commerce business can expect rates in the area of .35%.
However, changing a few variables can cause rates to vary substantially. For example, a business with a low average transaction amount may be quoted an interchange plus rate of 0% because the majority of expense will come from transaction fees.
Another consideration is how quotes are being gathered. For example, the rates that a business receives within CardFellow’s marketplace will generally be 30-60% lower than the rates the same business would receive outside of CardFellow’s marketplace.
The quickest and easiest way to learn what a low interchange plus rate is to sign up for free here at CardFellow to receive instant quotes from multiple processors. Processors can’t see your contact information, so you don’t have to worry about receiving sales calls or emails.
The Effective Rate Trumps All Others
Interchange plus pricing is only one step toward lower credit card processing fees; it’s by no means a silver bullet to high costs. The most important rate to consider when searching for the best credit card processor is the effective rate.
The effective rate shows the percentage of volume a business pays in credit card processing fees to process a given amount, and it is calculated by dividing gross fees by gross sales. For example, the effective rate for a business that processes $10,000 in sales, and pays $200 in fees is 2% (200 / 10,000 * 100).
Calculating effective rate provides total costs. That makes it the most accurate way to measure the competitiveness of a processing quote.
Calculating the effective rate for each processing quote you receive can be a daunting task, but it’s one that is well worth the effort. Each quote that you receive here at CardFellow is fully-disclosed and comes complete with the effective rate already calculated. So, if you would rather avoid the task of calculating the effective rate for several quotes, sign up for free at CardFellow, and let our software do the work.
Proof in Numbers
The examples below illustrate why focusing on the interchange plus rate instead of all of the rates and fees in a quote can lead to a costly mistake.
Example #1
For the first example let’s assume the business is a toy store that processes $15,000 a month with an average sale of $19. That means the business will process about 789 transactions.
The first processor offers an interchange plus pricing quote of 0.35% and $0.06 per transaction. The second processor offers a quote of 0.18% and $0.10 per transaction.
The monthly fees for the first processor will be $99.84 (.0035 * 15000) + (.06 * 789), and the monthly fees for the second processor will be $105.90 (.0018 * 15000) + (.10 * 789).
The second processor’s quote is more expensive even though it offered an interchange plus rate that is only half what the first processor offered. The reason is that this business’s average ticket makes the transaction fee more important than the interchange plus rate.
Example #2
For the second example let’s assume that the business is a newer e-commerce store that processes $5,000 a month with an average sale of $100. That means that the business will process 50 transactions each month.
The first processor offers a quote of interchange plus 0.20% and $0.10 per transaction, with a $25 monthly minimum fee. The second processor offers a quote of interchange plus 0.35% and $0.10 per transaction, with a $5 monthly minimum.
The monthly processing fees for the first processor will be $15.00 (.0020 * 5000) + (.10 * 50), but the monthly minimum will add another $10.00 to bring costs up to the minimum charge of $25. So, total actual charges for this processor will be $25.
The monthly processing fees for the second processor will be $22.50 (.0035 * 5000) + (.10 * 50). Total charges are greater than the $5 monthly minimum, so no addition charges will apply. That makes the second processor’s offer $2.50 cheaper than the first processor’s offer even though its interchange plus rate is higher.
As you can see, specifics of the businesses (such as average transaction size) play a big role.
Getting a good interchange plus rate is important, but the ultimate goal is to find the credit card processing solution with the most value at the lowest cost. If you are not sure exactly how to accomplish this, we would be happy to show you here at CardFellow. Fill out our business profile to see quotes from multiple processors instantly.
Great information, but for the examples that you mention (Example #1 and Example #2 below), do you include the interchange rate fee or not?
Hi Helio,
This is a great question. Neither interchange fees nor assessment charges have been included in the examples below. Only the processor’s markup (percentage and transaction fee) over these two costs has been used in the examples — and here’s why.
We teach people about credit card processing fees every day as we help them review the competitive quotes they receive in our marketplace, so we know how confusing fees can be to understand.
A key point to grasping credit card processing fees is accepting what you can’t change, and only one of the three main components of credit card processing expensive is negotiable.
Interchange fees charged by issuing banks and assessment fees charged by card brands are non-negotiable. Meaning these two components of cost are the same regardless of the processor a business uses. The only negotiable component of cost is the processing markup over interchange and assessments.
If we include interchange fees in the examples below it will only detract from the important, negotiable area of cost – the processor’s markup.
Our article Are Credit Card Processing Fees Negotiable addresses the root of your question in more detail.
Hello Ben,
This website is heaven sent. Its amazing how deceptive these merchant sales reps are. Can you explain to me how the Visa PCI compliance fee works? It appears that every merchant charges something different in regards to PCI. Also, is it best to have interchange plus pricing or the fix tier system processors offer?
Thanks for your compliments about CardFellow, Vee. We have a couple articles about PCI fees that will answer your questions. Check out these two articles: PCI Compliance Fee, PCI Non-Compliance Fees.
Interchange plus pricing is less expensive and more transparent than tiered pricing. Take a look at CardFellow’s credit card processing guide for a comprehensive overview of each pricing model.
Right now I am working with a merchant service sales person and looking at what they can offer me. We are a casual dining restaurant that has only been open for a few months. The sales person says they can do 40 basis points over interchange with no transaction fees. Is this a good deal? What should I look out for when talking with merchant service providers? Any advice would be greatly appreciated!!
Thanks in advance!
Thanks for your comment! Comparing providers and quotes on your own can be very time-consuming. The easiest thing to do is actually to sign up for a (free!) CardFellow account and get quotes from providers all at once. It’ll save you time and headaches, and all of the quotes you see will be optimized. Additionally, you’ll have the benefit of periodic audits (conducted by CardFellow) to ensure that your rates are what they should be. No surprises, no hassles. You can sign up at cardfellow.com. If you have any questions, let us know!
Interchange and 0.05% + $0.05.
Is this a good rate?
Hi there,
It depends on a number of factors, including whether your interchange costs and assessment fees are being passed to you at true cost. If you’re curious how your current pricing stacks up, you can do a free, no-obligation comparison. Try it here.