Interchange-plus pricing is a pricing model where your processor charges you the underlying cost of each card transaction, plus a disclosed processor markup.
Unlike flat-rate pricing, interchange-plus pricing doesn’t produce the same processing cost for every sale. Understanding how this fee structure works can help you compare payment processors, anticipate fluctuations, and determine whether the potential savings are worth the added complexity.
In this article, you’ll learn how interchange-plus pricing works, what its fees include, how it compares with flat-rate and tiered pricing, and which businesses may benefit from using it.
What is interchange-plus pricing?
Interchange-plus pricing is a fee structure that payment processors may use for card transactions. Card transactions always involve a fee: Each time a customer pays by card, the business pays a processing fee that’s divided among the financial institutions and companies involved in the transaction. Generally, those include the card network, card issuer, and the acquirer, which is the payment processor or merchant service provider.
The processing fee can be structured in different ways, and interchange-plus pricing is one of them. You pay the card issuer’s interchange fee, the card network’s assessment fee, and a disclosed markup charged by the processor.
The “interchange” refers to the interchange fee, while the “plus” refers to the processor’s markup. Interchange fees typically range from about 1% to 3% of the transaction amount, although some rates also include a fixed per-transaction charge.
Components of interchange-plus pricing
Here’s how the three components break down:
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Interchange fee. This fee goes to the bank that issued the customer’s card and pays for the costs of handling the transaction, like managing fraud and covering the risk that a cardholder won’t repay the purchase. The fee can vary based on factors such as the card type, the merchant’s industry, how the payment is accepted, and whether the transaction meets the requirements for a particular category.
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Card network assessment fee. This fee is paid to the card network, such as Visa, Mastercard, or American Express. It helps cover the cost of operating the payment network.
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Processor markup. This fee goes to the business’s payment processor. It’s usually set as a percentage of the transaction amount, a fixed per-transaction fee, or a combination of the two. Unlike the interchange component, the markup is typically fixed in the agreement between the processor and the business.
With interchange-plus pricing, the first two components—the interchange fee and card network assessment fee—pass directly to the business. The processor adds the third component: a separately disclosed markup that generally remains consistent under the merchant agreement.
Because there are numerous interchange categories, two transactions of the same amount may incur different fees. For example, an in-person debit-card purchase and an online rewards-card purchase may qualify for different rates. These individual categories and charges may appear on the business’s processing statement, making it more detailed than a statement showing a single blended rate.
Why do businesses prefer interchange-plus pricing?
Processors typically provide statements or account reports showing your payment activity and fees. With interchange-plus pricing, the underlying interchange and network assessment fees are separated from the processor’s markup, although the exact level of detail varies by provider. This breakdown helps you understand which costs come from the card networks and issuing banks and how much your processor charges.
The main benefit of interchange-plus pricing is that you pay the actual interchange and network assessment costs instead of a blended rate that may exceed those costs. This may lower your average processing costs if your transactions tend to qualify for lower interchange rates or if you negotiate a competitive processor markup.
But the outcome ultimately depends on factors such as the cards your customers use, how payments are accepted, your processor’s markup, and any additional fees.
Flat-rate vs. tiered vs. interchange-plus pricing
The pricing structure your processor uses can affect how fees are calculated and disclosed, which affects both your total costs and your ability to budget for them. The right model of these three depends on your transaction volume, need for predictable expenses, and preference for transparent pricing:
Flat-rate
With flat-rate pricing, you pay a set rate for card-present transactions and a set rate for card-not-present transactions. This pricing model is easy to understand and budget for since it combines interchange fees, assessment fees, and the processor’s markup into a single flat rate for each transaction type.
A flat rate may cost more when a transaction qualifies for inexpensive interchange, but it shields the business from paying a higher rate when interchange is more expensive. It can work well for small or low-volume businesses. Higher-volume businesses may save money with a pricing structure that offers a lower processor markup.
Tiered
With tiered pricing, your payment processor groups card transactions into a few categories beyond card present and card not present—such as qualified, midqualified, and nonqualified—and assigns a different rate to each category. The assigned rate blends all fees (interchange, assessment, and processor markup) into one price for each category.
This fee structure limits transparency because you can’t see how each rate is calculated, and the processor determines which transactions qualify for each tier. Costs can also be difficult to predict, particularly when transactions are downgraded to more expensive tiers.
Interchange-plus
With interchange-plus pricing, the interchange fee and card network assessment fee pass directly to the business. These fees can vary with each transaction. The processor adds the markup, which is a separately disclosed fee that is typically fixed and won’t change.
This structure is more transparent than tiered pricing because you can see the underlying card-network costs and the processor’s margin separately.
However, processing costs can vary based on your customer base’s card mix and transaction types, making them somewhat harder to predict. For businesses with higher transaction volumes, a low processor markup can make interchange-plus pricing less expensive than a blended rate.
Pros and cons of interchange-plus pricing
Interchange-plus pricing offers greater transparency and potential savings, but its variable costs and added complexity may not suit every business.
Pros of interchange-plus pricing
Consider the potential benefits of interchange-plus pricing:
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There’s more transparency with pricing. Processors typically provide statements or account reports showing your payment activity and fees. With interchange-plus pricing, fees may be itemized by interchange category or transaction, depending on the provider. The network costs and the processor’s markup should be separated, which helps you understand what you’re paying for.
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There are potential savings at higher volumes. Interchange-plus pricing lets you benefit when transactions qualify for lower interchange rates. Although it isn’t always cheaper than other pricing models, even small differences in rates can produce meaningful savings at higher sales volumes.
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It can be easier to compare providers. Your detailed statements allow you to identify the processor’s markup. This can help you compare pricing among payment providers and consider ways to reduce processing costs.
Cons of interchange-plus pricing
These are some of the drawbacks worth considering:
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Fees are less predictable. The total fee can vary from transaction to transaction because interchange rates differ by card type, payment method, merchant category, and other qualification requirements, making it harder to forecast your effective processing rate.
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Statements can be more complicated. Statements may list numerous interchange categories, rates, assessment fees, and processor charges instead of one rate. The processor calculates the fees automatically, but the additional detail can make statements harder to review, understand, and compare.
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Savings aren’t guaranteed. Interchange-plus pricing may cost less when transactions qualify for lower interchange rates or the business secures a competitive processor markup. However, the business’s card mix, transaction methods, markup, and any processor-specific account or service fees determine whether it costs less overall.
How Shopify Payments handles pricing
Many ecommerce payment platforms use flat-rate pricing because it simplifies processing costs. Businesses pay a published rate instead of tracking fluctuating interchange fees and a separate processor markup.
Shopify uses this approach with different flat rates based on the business’s subscription plan and how the payment is accepted. For example, store owners with a Shopify Basic plan pay $39 per month in addition to 2.9% plus 30¢ for online transactions and 2.6% plus 10¢ for in-person transactions.
Benefits of using flat rates with Shopify Payments include:
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No third-party transaction fees
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No setup, monthly, or hidden fees based on transactions
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Decreased transaction fees on higher-tier Shopify plans
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Full integration with Shopify admin
Small differences in processing rates can add up for businesses with significant transaction volume. For instance, after unifying its operations on Shopify, the wine retailer Vin Chicago reduced its payment processing fees by 30 basis points. Owner Peter Schwarzbach says the savings nearly offset the company’s entire annual Shopify subscription.
Interchange-plus pricing FAQ
How much does an interchange cost?
Interchange fees typically range from about 1% to 3% of the transaction amount, although some rates also include a fixed per-transaction charge. The exact cost depends on factors such as the card network, card type, business category, and whether the payment is made online or in person.
Why are interchange fees so high?
Interchange fees compensate the card-issuing bank for its role in authorizing transactions and for costs such as fraud prevention, credit losses, and cardholder rewards. Rates vary based on the costs and risks associated with the transaction, so online purchases and premium rewards cards may carry higher interchange rates than in-person purchases or basic cards.
How do you avoid interchange fees?
You generally can’t avoid interchange fees (and other debit and credit card processing fees) because card networks set the rates. You may be able to reduce your overall costs by accepting lower-cost payment methods, such as ACH transfers, or encouraging in-person payments when practical. You may also be able to pass on some of these fees to customers.
