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Interchange Plus Pricing Explained

There are multiple pricing structures that you may come across when researching which payment processor is right for your business, including the most popular options, tiered pricing, flat-rate pricing, and interchange plus pricing. But what is going to save your business the most money?

If this is your first foray into payment processing, the simple, uncomplicated nature of flat-rate pricing might seem enticing, after all, it doesn’t get much simpler then paying the same rate for all your transactions. There is a trade-off though, and the ease with which you can understand flat rate pricing usually comes at the cost of savings. Since with flat rate pricing, you don’t know what the processor’s markup is on top of the interchange fee, you have no idea how much you’re paying on top of what the processor pays for the transaction.

Interchange plus pricing, on the other hand, can appear more complicated, and it is difficult to argue that it’s not more complicated than one flat price for all transactions. But while it can sometimes be harder to anticipate what you’ll be paying for each of your transactions with this billing method, you can be assured that you’re probably saving your business money (and you can easily prove your savings with any scrutiny). So, even though it can seem more complicated, to begin with, interchange plus pricing can be the best and most cost-effective pricing structure for your business. Before you disregard interchange plus pricing because of its complexity, check out our reasons why interchange plus pricing is a great option for your business.

So How Does Interchange Plus Pricing Work?

To understand how interchange plus pricing works, you must first understand what the interchange fee is and how it is applied to all credit card transactions. It is essentially the base fee charged by the card brand when you process a credit card transaction, and the interchange fee will fluctuate depending on what kind of card is used, how the transaction is completed, if the card is present or not, and a host of other factors.

In interchange plus pricing, the payment processor passes on the fluctuating interchange rates to the merchant, while their margin fee is charged on top as a consistent, set rate for each transaction. Where the real savings come from is whenever you process a transaction that is eligible for a lower interchange fee, your business will benefit from the lower interchange rate. If you were on a flat rate pricing structure then you would still be paying the same amount, losing out on the potential cost savings from processing a less expensive credit card.

Of course, the reverse is also true, where if a card with a higher interchange fee is used, then you would pay the higher transaction cost for that card. However, those transactions involving more expensive cards (with regard to their associated interchange fee) may not even increase your total transaction cost to what it would cost in a flat rate model. The great thing about the transparency that interchange plus pricing affords you as a merchant, is that you can easily see what your processor’s margin is as well as what the interchange fees are, so you always know what you’re being charged and why. This means you are always able to reconcile what you’re being charged on your statement with what is clearly outlined by the processor, and you can actually understand the underlying costs you’re paying for payment processing.

But What About a Monthly Fee?

Often, processors who bill using the interchange plus pricing model may also have a monthly fee, but it is often worth it to benefit from the significant savings. Monthly fees are often instituted to cover the cost of providing the service and can have supporting costs like PCI rolled into it. However, a monthly fee should not be considered a non-starter because the savings you experience with interchange plus pricing can cover the cost of the monthly fee fairly early on in a billing cycle, depending on how much you are processing. In most cases, very small businesses (micro-merchants) or seasonal businesses may benefit more from flat-rate pricing, because the monthly fee may be more than their processing volume can account for.

For a more in-depth look at how interchange plus pricing works check out our article on Interchange Plus Pricing vs Flat Rate Pricing and our Quick Overview of Interchange which also includes an informative video.

What Makes Interchange Plus Pricing So Great?

  • You’re Not Overpaying for Lower Cost Transactions
    Because the interchange rate varies depending on the card your customer is using and how the transaction is being processed, some transactions will have lower interchange rates than others. If you’re on a flat rate pricing plan then you won’t see the difference in cost between these transactions. Instead, with flat-rate pricing, each transaction will have the same processing fee associated with it regardless of the cost to the processor to complete the transaction. However, when you’re on an interchange plus pricing plan, your transaction fees will adjust to reflect the interchange fee the card brand is charging for each card type.  

    It’s a good idea to check out what the processor’s margins are because in some cases, their highest interchange plus rates are still lower than a lot of standard flat or tiered rates.

  • Interchange Plus is Transparent
    With interchange plus pricing, your monthly statement will usually break down the fees and what they are associated with, so you will be able to see what you are being charged, which cards and processing types are more or less expensive, and any additional fees or surcharges that might apply. Because interchange plus pricing statements list out all the fees, it can help to eliminate hidden fees and surcharges that some processors may try to sneak onto merchants’ statements hoping they won’t notice or ask what they’re for.

    While it’s not a guarantee that interchange plus will save you money because processors can still exorbitantly mark up their prices, at least with this billing arrangement, it would be easy to recognize that they are doing it.

  • Process More and Save
    Payment processors who offer interchange plus pricing may include volume discounts when you are over a certain transaction volume per month which means that you can save money when you’re processing more. While this can add another level of complexity to the rates that you’re eligible for, it is another example of how having an interchange plus pricing plan can save you money, because as your business grows, you’ll be eligible for better rates.

    If your processing volume is very low and you’re on flat rate pricing, you can quickly outgrow that solution. Whereas with volume discounts associated offered alongside a lot of interchange plus pricing plans, you won’t outgrow your processor because you save money the more you process.

  • Automatically Benefit if Card Brands Lower the Interchange Rate
    Card brands adjust the interchange rates often, and with an interchange plus plan your business will automatically benefit whenever the card brands lower the interchange rate. When the interchange rate changes you will see the new rate on your statement, unlike with a flat rate plan where the processing fee will remain the same even if your payment processor is now being charged less because the card brands have lowered the interchange rate.

  • Interchange Plus Makes It Easy to Compare Rates
    With interchange plus you can easily compare rates between different payment processors because the interchange fee is set by the card brands. So, when shopping around, you are primarily just comparing the payment processors’ margins, and also taking into consideration any additional monthly account fees or expenses that may be related to the processor’s software or equipment.

    Interchange plus pricing is the best way to ensure your business is getting the best deal on its payment processing. It’s certainly more transparent than typical tiered or flat rate pricing plans and allows you to really understand what you’re being charged. When you have an interchange plus pricing structure, you can be confident that your monthly statement will be transparent and reflect exactly what you’re paying for in relation to the different card types and types of transactions your business is processing.
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