The fee can fluctuate based on the payment method employed, such as loyalty cards or card-not-present (CNP) transactions. The interchange-plus pricing model, though exceptionally transparent, can also be a bit intricate to grasp. This structure entails distinct charges for each party’s role in the transaction. It essentially transfers the wholesale fees, which encompass a wide array of over 300 possible interchange rates and numerous association fees, directly to you. Additionally, a nominal fixed percentage markup over these costs serves as compensation for your payment processor.

What Does This Mean?

Interchange-plus pricing can vary based on different card types and transaction volume because the interchange fees set by the card networks are not fixed; they depend on various factors, and the processor’s markup can also be influenced by transaction volume. Here’s how these factors affect interchange-plus costs:

Card Types

Interchange fees are not the same for all card types. Different cards, such as credit cards, debit cards, and rewards cards, have varying interchange rates. Credit card transactions often have higher interchange rates than debit card transactions, and premium rewards cards can have even higher rates. Therefore, if your customers frequently use higher-tier credit cards, your interchange costs will be higher compared to transactions with standard debit cards. Your processor's markup is typically applied as a percentage of the interchange fee, so a higher interchange rate will lead to higher processing costs.

Transaction Volume

Payment processors often offer tiered pricing based on transaction volume. This means that businesses processing a larger number of transactions may negotiate lower processor markups or receive volume discounts. The more transactions a business processes, the more negotiating power they may have to secure better pricing from their processor. In an interchange-plus model, the processor's markup is usually a percentage of the interchange fee. So, if you negotiate a lower markup due to high transaction volume, you can lower your overall costs.

Here’s an example to illustrate how card types and transaction volume can affect interchange-plus costs:

Let’s say you have two businesses that both use an interchange-plus pricing model:

Business A processes primarily debit card transactions with low interchange rates, and they negotiate a processor markup of 0.20%.

Business B processes a mix of credit card transactions with higher interchange rates and some debit card transactions, but they have a high transaction volume and negotiate a processor markup of 0.15%.

While both businesses are using interchange-plus pricing, Business B, with its lower processor markup and higher transaction volume, will likely have a more competitive overall cost structure compared to Business A, which deals with higher interchange rates and a slightly higher markup.

In summary, interchange-plus pricing varies for different card types and transaction volumes because interchange fees and processor markups are influenced by these factors. Businesses can optimize their payment processing costs by understanding these variables and negotiating favorable terms with their payment processor.