To understand Interchange Plus pricing (Interchange-Plus, Interchange+, iPlus), also known as Cost Plus pricing (Cost-Plus, Cost+), you first need to know what Interchange is. If you’re unfamiliar, please check out our explanation of Interchange here. Simply put, Visa describes Interchange as the “transfer rate exchange between the retailer’s financial institution (an acquirer) and the cardholder’s financial institution (an issuer)” every time a credit card is used for payment. It is the wholesale cost of each individual transaction to the processor.
Interchange Plus pricing is a billing method used by some credit card processors and works as follows; for every transaction there are essentially two parts, the “Interchange” and the “Plus”. In addition to Interchange - the base fee paid to an issuing bank - there is an additional, smaller, Card Brand fee that is paid to the card brand (Visa, Mastercard) for facilitating the transaction.
Note: While the name strictly says Interchange, it is a cost plus pricing method so Card Brand fees are also included in the “Interchange” part of the calculation and this is why Cost Plus pricing is perhaps a more accurate name.
Next is the “Plus” part of the transaction. This is the amount the processor adds on top of its wholesale cost to pay the acquirer fees and run their business of providing you transaction processing, clearing, settlement, reporting, and customer service. For example, the interchange rate for a regular Visa Consumer card - the most popular category of credit cards - is 1.42% and the card brand fee is 0.1017%. On top of that the processor might charge 0.20%, making the total rate for that transaction approximately 1.72%. There are no non-qualifying charges or non-qualifying transaction in this model.
While Interchange can seem complicated, Interchange Plus pricing is actually a very simple billing method. It’s typically recognized as the cheapest pricing structure available because of how transparent it is. There is nowhere to hide any additional fees and you know exactly what your processor is charging which makes for a very clear and honest relationship. As your sales volume increases the rate your processor charges usually decreases as is the case in economies of scale.
This chart shows a representative split of the relative amount Discount Payments collects from an average transaction fee. (with Discount Payments there are no additional per transaction fees or any other fees added to each transaction)
The exact numbers used to make it can be found using our pricing calculator, choosing “all other retail businesses” with a volume of $10k - $50k. This results in an estimated average transaction rate of 1.79%. The processing rate of 1.79% would then represent the whole of the pie, and what is grey is the wholesale cost of the transaction that goes directly to the issuer and card network. The green portion is the relative amount that Discount Payments collects, which is a guaranteed fixed rate above cost that is transparent and will never change for you. It includes the fees paid to the acquirer for their role as explained above and pays for transaction processing, clearing, settlement, reporting, and customer service. The minority portion indicated above is the entirety of what Discount Payments charges to provide small businesses the ability to accept card payments at such low rates. This is how we are able to save small businesses money. Through operational excellence and the arrangements we’ve negotiated with financial institutions, we’re able to provide small businesses with processing rates previously only available to larger corporations processing over $5M annually.
Discount Payments is unique in that it charges no additional per transaction fees or fixed monthly fees so the amounts we collect based on the processing rate is the only thing you pay aside from the machine.
The chart below represents interchange, it is the base cost of every transaction. The interchange rate varies depending on several factors, to learn more please read our explanation of interchange. We’ve chosen to depict the 4 most popular Visa categories here.
As explained above, Interchange Plus is a small fixed percentage added on top of the straight cost of each transaction. Interchange Plus pricing is the most transparent arrangement possible with a processor.
Flat rate pricing is simple, clear and consistent but you are paying more for this simplicity. The upside is that you know exactly how much you will always pay on every transaction as it will always be the same. The downside is that it is much more expensive because the flat rate must be high to ensure the processor doesn’t lose money on any transactions, which means you are paying a large markup on the most popular category of cards. Pictured here is Square’s flat rate of 2.65%.
Also known as Tiered Pricing, this is historically the most popular pricing structure and is where you hear the terms “qualified” and “non-qualified”. While the chart’s depiction isn’t how in theory this pricing approach is defined, in practice it is how it is used. Processors advertise an impossibly low rate like 1.25%, this would be your qualified rate but they may not even explain it in so clear a term. The problem is that it is practically impossible for you to ever accept a card with that rate so not only will you pay the interchange differential, you will also pay their large non-qualified fee, their marked up card brand fee and possibly more. This approach is incredibly opaque and is mainly used by processors to deceive and trick merchants into paying higher fees when they think they’re actually getting a deal.