Interchange Plus Archives

The Importance to Compare Different Payment Pricing to see Which Models is Best to Achieve Your Goals.

Payment innovation has evolved and customers are using credit cards for payments more and more because it’s convenient.

But do you know what Interchange Plus, Fixed rate, Cash Discounting and Surcharge Pricing means? If not it this should help you to understand the different pricing models.

Payment Pricing Models

When it comes to credit cards, there are lots of cards your customers will use. Reward cards, platinum cards, student cards, no-fee cards, low-fee cards and travel cards, and each type comes with a different rate for processing. This is a fee that the merchant pays every time someone uses that card.

Every credit card brand (e.g. Visa, MasterCard, Discover) has a published, percentage-based on the interchange fee that they charge every time their cardholders uses their credit card – the cost of authorizing the charge.

Effective Rate

The effective rate is what you are being charged. The best way to know your effective rate is to take a recent statement, look at your fees, than divide that number by how much you processed in credit card sales.

The problem with traditional pricing models is they can hide the interchange cost which allows them to charge a markup. Processors consolidate a variety of rates into a smaller numbers; essentially “round up” to the highest rate in each tier. This makes monthly statements easy to read and makes it hard to see what the real rate the transactions are charged. It also allows the possibility of paying higher rates!

Interchange Plus

Interchange plus, also referred to as “cost plus” pricing, is straightforward pricing. Using cost plus pricing is transparent because it is more difficult to have hidden fees. With this pricing, processors take all the bank fees, card brand fees and pass them to the business owner, then add their markup fee (i.e 20%). You can check out all the interchange rates as they are published by Visa and MasterCard.

With interchange pricing, the business owner pays the non-negotiable interchange fee for the type of credit card and the payment processor markup. The markup is calculated by adding the interchange fee, a basis point mark-up and a per-transaction fee charged by the payment processor.

By showing you the actual interchange costs, interchange-plus pricing allows you to easily see what the markup is. This encourages processors to set reasonable markups plus this transparency helps ensure you are getting the best rates.

Fixed Rate Pricing

The fixed rate model, aka “flat rate” is simple which why it is appealing to appliance repair business owners. If you want to know your real operating costs, paying a flat rate for processing will make the most sense because there are no hidden fees.

Fixed rate is easy to understand and can result in bottom line savings. Business owners can easily calculate credit card processing fees since the rate is the same each month, no matter what type of card or transaction method is used.

Apps like iWallet Business offer a consistent low flat rate which is why it lots of appliance repair business owners are switching to this. For budgeting you know what to expect—2.3% processing for businesses that process over one million per year and 2.5% for under.

Cash Discounting

A true cash discount program gives the customer a discount for cash payments and avoids additional costs. This model passes the cost of acceptance back to customers who choose to pay with a credit card or debit card.

Giving discounts for cash is legal in all of the 50 states and is well received by the customer. Cash discounting has been around for decades and gaining in popularity. Gas stations have used cash discounts for many years. Paying with cash costs the customer a little less per gallon than paying with a credit card. There are a handful of specific rules to follow to stay compliant, be sure to work with a provider that will help you navigate these rules.

Surcharge Pricing

A surcharge program is a type of credit card processing where you charge the consumer an additional fee “surcharge” on top of the cost of service to cover the merchant processing cost. Surcharge programs are currently legal in almost all 50 states.

A surcharge program recoups merchant service fees that are charged when the customer presents a credit card as payment. A surcharge program doesn’t feel as good to the customer because it adds the additional fee at checkout.

Selecting the best option for your business Paying with a credit card is convenient and fast, but the processing rate differs on each credit card with effects your fees. On top of that monthly fees are determined by the card types, and merchant fees are added on top of the actual cost. It can be hard to decide between the different programs so be sure to consider the many before implementing a new program into your operations. Learning the different terms and how they can help your bottom line and potentially keep more money in your bank account.

Compare Your Credit Card Processing Fees to See If You Can Save Money

The rates that you pay will vary depending on the processor and the pricing model of your individual payment processer.

If you’re considering a new credit card processor, here’s valuable information to help you compare your options so you won’t be misled.

What is Your Savings Potential?

Check your most recent statement to what you are currently paying. If you process over 1m annually and are paying more than 2.5% this may be a good time to push back on your current provided and ask for a fee reduction.

Or it may make more sense to explore other competitive options to learn how you can save on fees. If you have the tools and education, your decision to stay with current processor or move will be easier.

Interchange Plus

Interchange-plus is a pricing model where credit card processors break down the fees that go to the bank or credit card issuer and their markup. There are two components — the interchange fee determined by the card networks and a markup set by the credit card processing company.

The transaction fees that the merchant’s bank account must pay whenever a customer uses a credit/debit card for payment. The fees are paid to the card-issuing bank to pay handling costs, bad debt costs, fraud and the risk involved in the payment approval.

What you need to understand is that there are hundreds of interchange categories – all with different rates. Different categories apply to different transactions, but the processor doesn’t control when they apply. In any given month, multiple interchange rates will appear on your statement; however these rates are the same no matter which processor you use.

Interchange –is the fee that comes directly from the card networks like Visa and Mastercard. Payment processors have no control on these rates, and are required to pay.

Plus – The “plus” is the markup that your credit card processor is charging on top of the interchange fee. This is the percentage fee and a transaction cost.

Generally, interchange-plus pricing is more favorable for small businesses compared other with pricing models such as This is because interchange-plus is not only more transparent, but businesses usually end up paying lower processing costs with this model.

Here’s how interchange-plus stacks up compared with other common pricing models.

Tiered Pricing

Tiered pricing is probably the most common credit card processing model because it simplifies your fees by breaking them down into three main tiers — qualified, mid-qualified and non-qualified.

Qualified Rates –Transactions that fall under this category have lower fees attached to them,

Mid-Qualified – Is the percentage rate charged whenever they accept a credit card that does not qualify for the lowest rate

Non-Qualified –These transactions will charge your higher rates for.

The nature of a transaction will determine the category in which it belongs. Debit cards and non-reward credit card transactions typically fall under the qualified rate, while transactions involving corporate cards, higher rewards cards, and card-not-present transactions would be under the non-qualified category.

Since your transactions are categorized into 3 tiers, the tiered model makes your statement easier to read. The major downside is the tiered pricing model lacks transparency when it comes to your fee breakdown.

Blended Pricing

Blended rates are bundled so that the merchant is paying one overall cost each month which includes a percentage of the transaction total plus a flat fee. This pricing model is used by Square, Stripe and PayPal and the rate might be 2.6% plus 10 cents for in-person transactions. There is no clear way to determine what you are paying becasue fees are charged at an equal and unchanged rate month-to-month.

Flat Rate

Flat Rate pricing means that the credit card processor is charging one flat rate for all credit card transactions, regardless of the fluctuating interchange rate. This model is designed to cover all aspects of your processing in one cost.

Don’t Forget Hidden Fees

Be sure to read the contract because sometimes there are hidden fees that add up.

Cancellation Fee – Many processors use contracts with cancellation fees. They know that once you sign that contract, which are usually three years, you’ll have to pay to get out of it.

Processing equipment – Companies like Square, Cover and require the purchase of card readers or POS equipment.

If you want to take more money to the bank by saving on processing fees you should consider iWallet Business App. iWallet has two flat rate processing plans; one for under 1m and 1 for over 1m. No fees to sign up, no equipment to purchase and you can cancel anytime for free. Understanding what is the best payment processing will help you save money. Do your processing research and select the best pricing model for your business needs.