Interchange++ pricing – how it works

Each card transaction requires a fee paid by a merchant. And these fees can depend on the type of pricing models such as tiered or fixed pricing, or interchange++. Today Maxpay will focus on what interchange++ is, how it differs from other payment models, and which benefits can it bring to a merchant.

What is interchange plus plus pricing?

An interchange fee is a quite common charge in the payment card industry. In general, an interchange fee definition is simple, it is a fee that is being paid between financial institutions for the acceptance and processing of credit and debit card transactions. Normally for goods and services purchases, it is a fee that an acquiring bank pays to an issuing bank of a customer. 

Interchange rates are dictated by the payment networks such as Visa, Mastercard brands. The amount of the interchange fee often counts as a little percentage of the total transaction amount, and it is usually more costly for credit than debit cards because of the potential risk of credit purchase.

Interchange + and interchange++ are the two types of transaction pricing that are most commonly utilized in the European Union, the United States, and Canada. Both are accessible for transactions performed through Visa and Mastercard. Interchange + and interchange++ basically break down transaction charges into their elements making them visible for a merchant.

Interchange+ pricing

Interchange plus pricing separates the merchant service charge or MSC into 2 basic components that shape the transaction fee.

1. The interchange itself. It is paid by an issuing bank of the customer to the merchant’s acquiring bank.  
2. The plus. It includes the transaction processing fee, along with the card network scheme charges that go to Visa and Mastercard.

When card networks such as Visa and Mastercard update the rate of an interchange fee on a certain credit or debit card, then the interchange part for the merchant service charge would be modified instantly, either up or down, mirroring an update to the cost base of an acquiring bank of the merchant. 

Interchange++ pricing

When it comes to interchange plus plus pricing, an acquiring bank of the merchant passes along the interchange itself, together with scheme charges by card networks. And in this case, the total interchange plus plus pricing consist of 3 components.

1. The interchange itself.
2. The first plus or acquirer fees. The first plus represents the processing fee that is taken from a merchant by an acquiring bank or payment service provider as a mark-up for merchant services and the usage of the payment gateway.
3. The second plus or card scheme fees. The second plus represents the card associations fee that is taken by the card brands like Visa and Mastercard, from an acquiring bank of the merchant for using card brands networks. In general, card scheme fees for Visa customers are about 0.02% of the transaction sum, and for Mastercard, customers are about 0.04%.

Card scheme fees are normally much lower than the interchange itself, and their amount is influenced by different aspects such as the credit or debit card type, transaction kind, and so on. 

What influences the fees for interchange++?

1. Country of card issue. Overseas cards are more expensive than European and UK-issued cards.
2. Country of transaction. Domestic transactions are known to be the cheapest, while cross-border purchases top up the fees.
3. Type of card. Debit cards in general present lower rates than credit cards because of the potential lower risk for banking networks. Also, personal cards are cheaper to process than corporate ones. And at last, there is a difference between the loyalty program, platinum, gold, or regular card program affects the fee as well.
4. Type of transaction. Point-of-sale or POS transactions are less risky for banking networks than card-not-present or CNP purchases. It is so due to the verification issues, the card chip can be read along with the information in it, a signature can be demanded from a customer, and at last, there is a PIN to be entered. While mail-order and telephone-order purchases together online transactions are less secure and require a higher interchange fee.
5. Card technology. PIN and chip purchases again are considered by bank institutions to be secured, when a contactless payment is not. And so the second payment type would require a higher interchange++ fee.
6. Business size. A merchant obtaining big business usually has lower fees as he or she can negotiate processing charges with banking institutions and credit card brands.
7. Industry type. A high-risk business is always charged more due to the potential it can cause to financial institutions and processing networks. By the way, here we have listed all the industries that are automatically labeled as high-risk “Which industries do banks consider high-risk?”

How does Interchange plus plus pricing compare to other fees?

Interchange plus plus pricing vs tiered pricing

Tiered pricing is known to be the most common charge processing system among all others. Tiered pricing includes three main types of fees that a merchant can be charged during a transaction: qualified, mid-qualified, and non-qualified.

The qualified transactions have the lowest fees in this model, while non-qualified transactions are charged the most. The category of the transaction is defined by its nature. For example, debit cards purchases are usually attached to the qualified rate. But purchases with corporate cards or card-not-present purchases go immediately to the non-qualified category.

Still, a tiered pricing model does not allow a merchant to regard the exact amount that they are going to be charged with. The reason is that most of the credit card processors push the visibility of the non-qualified rate to attract merchants, hiding in small letters the non-qualified charges. 

Interchange plus plus vs blended pricing

When it comes to blended pricing or fixed pricing, we can say that it is the opposite thing from interchange++. Fixed pricing does not separate processing fees into subcategories. Instead, it presents the total summed-up fee for every transaction. With this model, merchants don’t know exactly what are the charges for an acquiring bank, for a card brand, and for the transaction itself. 

Blended pricing is indeed easier to calculate, but compared to interchange++, fixed pricing does not highlight all the aspects of the deal. The transparency of interchange++ makes a merchant understand what the fee stands for. 

Interchange++ shows the precise separation of each fee: for an acquiring bank or a payment processor, a card brand, and the transaction itself. In a fixed pricing model a payment processor or an acquirer can charge 2.9%+$0.30 per transaction with an extremely high mark-up to cover all the possible extra charges at once.