Interchange Plus Pricing: A Merchant’s Best Option

Accepting credit cards at your business is a must these days, so making sure you’re getting the lowest cost to process those cards is also a must.

Interchange Plus Pricing is the best pricing model for a merchant because it puts the power in the merchant’s hands by giving him or her a straightforward and clear explanation of charges.

Interchange Plus Overview

Ben Dwyer of CardFellow explained it well when he said, Interchange plus is the term used to describe a merchant account pricing model where a fixed markup is applied directly to interchange fees published by Visa®, MasterCard® and Discover®.

So, Interchange Plus pricing really has two parts you need to understand: the “Interchange” and the “Plus.”

1. Interchange: The rates that come directly from the card networks. No merchant or processing company has any control over these rates. Every merchant, from the family owned store to the big box retailer, pays interchange. Interchange varies based on the type of card your customer is using. Bottom Line: There’s no getting around it.
   • Need a more in depth explanation of interchange? Try this.
   • See the published interchange rates from  Visa and MasterCard .

2. Plus: The “plus” is what the processing company is charging you for their service. It is their profit. The “Plus” is shown in terms of a percentage markup and a transaction cost. Bottom Line: You want to find the interchange plus pricing plan with the lowest effective rate.

What are the benefits of Interchange Plus?

The Interchange Plus pricing model is always talked about in comparison to a tiered pricing model. You won’t understand what a great model Interchange Plus is until you understand the pitfalls of the tiered model.  In the simplest of terms, a tiered plan lumps the processor’s profit and the interchange into one rate per tier. Unfortunately, most of your transactions will fall into the higher, more expensive tiers and you won’t be able to tell what the True Cost of processing is (need a more in depth explanation of tiered pricing? Check here or here).

So, the benefit of interchange plus is that it is straightforward and clear. It’s parsed out in a way that you can see exactly what rates you are paying. Consequently, the companies usually have better, more competitive rates because merchants can tell if they’re being overcharged.

What are the best Interchange Plus deals?

Like I said before, the best thing you can do is find a company with the lowest overall cost. Many of the companies offering interchange plus pricing offer pretty competitive prices, but one company is removing the percentage markup altogether.

Payment Depot, technically falls under interchange plus model, but you may want to think of them in terms of a whole new pricing model: membership.

By becoming a Payment Depot member, merchants get direct access to interchange with no added percentage markup…aka interchange + 0%. Along with their standard features and responsive member specialists, the Payment Depot team is leading the way in making it more affordable for business owners to accept credit cards.

How Do I Know If I’m Getting a Good Interchange Plus Deal?

Not all interchange plus deals are created equal. Like I said before, companies offering interchange plus deals usually do have better prices, but calculating your effective rate is still so important.

Why? Because your effective rate is the rate that you’re getting when all of your processing costs are added up.

So, say the company you’re looking at is offering you a super super low interchange plus rate that seems like something you can’t pass up. But, what you don’t consider is that this company is going to charge you a monthly statement fee, monthly PCI fee, surcharges, etc., etc. With all of these extra costs, that low interchange plus rate isn’t such a good deal anymore.

Figuring out your effective rate shows you how much you’re actually paying, overall. Once you know your effective rate you have the tools to make an informed decision about which interchange plus deal is actually the best deal.

How Do I Calculate My Effective Rate?

Grab your credit card processing statement and find these two numbers:

1.the total amount of fees charged by your processing company

2. your total amount of credit and debit card sales

Now, divide the total number of fees charged by your total amount of credit/debit sales. Once you get the answer, move the decimal two places to the right. This is your effective rate.

Here’s an example:

total amount of fees charged by your processing company: $325

Your total amount of credit/debit card sales: $17,300

325/17,300= 0.018786 Now,  move the decimal two places to the right: 1.8786% . If we round up, the effective rate is 1.88%

Can I Calculate the Effective Rate For a Company When I am Just Shopping Around?

Yes, but its a little trickier. Since you aren’t currently processing with them you will have to use some averages, so your effective rate will be an estimate (a pretty good estimate, but an estimate none the less).

 Here’s the info you need to gather:

A. Your total amount of credit/debit card sales–use your last months total or the average monthly total you sell __________

B. Find the interchange plus deal they are offering to you (interchange + ?%) ____________

C. Add up all of the monthly fees you would be charged (i.e. monthly fee, equipment lease, statement fee, etc.) _________

D. Find the per transaction cost and multiply it by the number of transactions you usually do per month  _________

Now that you have all of those blanks filled in,  you’re ready to do your calculations.

Step 1

You’ll need to take your info from B and figure out your dollar amount. To do this, multiply your total sales times the decimal value of your total interchange plus percentage.

The average interchange rate is 1.5%, so whatever the “plus” that they’re offering is added to the 1.5%. Don’t forget to make the percent a decimal when you multiply it by your sales.

(example: your sales–$15,000| interchange plus offer–1.5%+0.36%| 15,000 x .0186 = $279)

Step 2

Add up the dollar amount you just found in step one to the dollar amounts you filled in the blanks on C  and D.

Step 3

Divide the dollar amount you just found in step 2 by your total monthly credit/debit card sales. This will give you your estimated effective rate for the interchange plus deal you are looking into!

Is Payment Depot’s Interchange Plus Pricing Still a Good Deal?

Yes. Here’s why:

I mentioned before that you need not be convinced by a seemingly low interchange plus deal, but that you needed to calculate your effective rate in order to make sure the deal is good. So, you may see Payment Depot’s interchange plus 0% deal and think its a deal that seems too good to be true.

So, I challenge you to calculate your effective rate. The interchange plus deal is great, but look through our pricing and check out what you would be charged monthly. You’ll find that you have your membership cost (it’s paid annually, but break it down for your calculation to see the monthly cost) and your per transaction cost. That’s it!

No surcharges or statement fees or PCI fees. We eliminate those hidden fees because we want our members to get the best deal in town.