What is Interchange Plus?

Interchange plus pricing, also known as cost-plus pricing, is a transparent and direct method for determining the fees that merchants pay for processing credit card transactions. In this pricing model, merchants are charged two main types of fees: interchange fees and a markup.
 

Interchange Fees:
 

• Interchange fees are set by the credit card networks (such as Visa, MasterCard, or Discover) and are paid to the card-issuing banks. These fees are non-negotiable and represent the fundamental cost of processing credit card transactions.
   

• Interchange fees vary based on factors such as the type of card (debit, credit, rewards), the risk associated with the transaction, and the industry of the merchant.
   

Markup:
 

• The markup is the additional fee charged by the payment processor or merchant service provider. It is a percentage of the transaction amount or a flat fee per transaction.
   

• The markup covers the processor's costs and includes their profit margin.
   

In an interchange plus pricing model, merchants pay the actual interchange fee set by the card networks plus the agreed-upon markup. This pricing structure is considered more transparent and fair compared to other models, such as flat rate or tiered pricing, where the wholesale costs and fees are not disclosed.
 

Benefits of Interchange Plus Pricing:
 

• Transparency:  Merchants can see the actual interchange fees and the processor's markup separately, making it easier to understand the cost breakdown.
   

• Fairness:  Since merchants pay the actual interchange rates, the pricing is perceived as more equitable.
   

• Flexibility:  Merchants have the potential to negotiate the markup portion, providing more flexibility in terms of pricing arrangements.
   

While interchange plus pricing offers transparency, it's essential for merchants to carefully review the terms of their agreements and understand both the interchange rates and the markup to ensure they are getting a competitive and fair deal for their credit card processing services.