What is interchange plus pricing?

So, you've heard about interchange plus pricing and how it can save you money. But how does it work? This article breaks down this transparent pricing model, so you take more control over your processing costs.

In this article

• Video: how interchange plus works

• Why is it called interchange plus?

• How does it work?

• Why is it beneficial?

• Conclusions

• Next steps

• FAQ & troubleshooting

Video

Why is it called interchange plus?

The name "interchange plus" actually gives you a clear picture of how this pricing model works. Let's break it down.

Interchange

This part refers to the interchange fees set by the cardholder’s bank, as well as the assessment fees paid to card networks like Visa and Mastercard. This portion is not determined by us, the payment processor.

In this context, the word “interchange” represents the combined cost of interchange and assessment fees.

Plus

The "plus" refers to the processor's markup – the fee your payment processor (like Helcim) charges for their services.

So, "interchange-plus" literally means the cost of interchange and assessments, plus the processor's markup.

How does it work?

The magic of interchange plus is that you only pay for what you need. Instead of being charged a fixed, inflated rate for every transaction, you pay for the interchange and assessment fees, plus a small markup.

Here are a couple scenarios to illustrate how this works.

Scenario 1: In-Person Clothing Purchase

A customer buys a $100 jacket in person using a standard Mastercard.

Let’s assume the following fees.

• The interchange rate is 0.92%

• The assessment fee is 0.10% + 1¢,

• The processor markup is 0.40% + 8¢

We end up with the following total fee.

• Interchange fee: 0.92% of $100 = $0.92

• Assessment fee: 0.10% of $100 = $0.10 + 1¢ = $0.11

• Processor markup: 0.40% of $100 = $0.40 + 8¢ = $0.48

• Total fees: $0.92 (interchange) + $0.11 (assessment) + $0.48 (markup) = $1.51

This results in a true rate of 1.51% ($1.51 / $100).

Scenario 2: Online Clothing Purchase

A customer buys a $100 jacket online using a premium Mastercard.

Because the transaction is online and the card is premium, the fees change.

• The interchange rate is now 2.54%

• The assessment fee is now 0.10%

• The processor markup is now 0.50% + 25¢

We end up with a higher total fee.

• Interchange fee: 2.54% of $100 = $2.54

• Assessment fee: 0.10% of $100 = $0.10

• Processor markup: 0.50% of $100 = $0.50 + 25¢ = $0.75

• Total fees: $2.54 (interchange) + $0.10 (assessment) + $0.75 (markup) = $3.39

This results in a true rate of 3.39% ($3.39 / $100).

As you can see, your fees vary depending on the card type and transaction type. With interchange-plus pricing, you see these variations clearly, allowing you to understand how different transactions contribute to your overall processing costs.

Why is it beneficial?

Interchange plus is beneficial for the following reasons.

• Transparency: You know exactly what you're paying for.

• Potential Savings: Interchange-plus can often be more cost-effective, especially for businesses with diverse card types and transaction volumes.

• Control: You can better manage your costs by understanding the factors that influence interchange rates.

Conclusions

Here’s a point-form review of what we learned in this article.

• Interchange refers to the fees charged by the issuing banks and card networks, while plus refers to the markup charged by the payment processor.

• Each time you process a transaction, a unique rate is determined based on the customer’s card and transaction method. E.g. in-person transactions with consumer credit cards cost less than online transactions with premium credit cards.

• Interchange plus is sought after for its transparency, savings, and control over processing costs.

Next steps

Now that you understand how interchange plus pricing works, you might be wondering how this compares with other pricing models. Check out our next article to find out more.