What is Interchange Plus pricing?
When it comes to credit card payment processing, there are two main types of pricing offered by merchant banks to their customers: tiered and interchange-plus. Traditionally, interchange-plus pricing has only been offered to businesses that do a high volume of credit card transactions each month. However, this is changing, as Leap Payments is extending the benefits of interchange-plus pricing to all companies.
So what is interchange-plus pricing? To understand this question, we first need to analyze how bankcard processing works. Merchant banks serve as the intermediary between businesses and credit card companies whenever someone uses a card to make a purchase or payment. In exchange for performing these services, merchant banks receive a fee on credit card transactions — usually paid by the business. Some fees are paid as a percentage of the gross credit card transaction. Others are set fees paid for each transaction. Many businesses also pay flat fees for services such as account statements and member fees.
The most common fee schedule offered today is tiered pricing. This is a sliding scale of fees based on various factors such as what types of credit cards are being used, which transactions are being processed by the credit card merchant service and the type of business accepting the card. All of these factors can make it very confusing for a business to calculate how much they will be paying in credit card transaction fees every month. If you’re on a tiered structure you typically have one rate that your provider openly discloses and then “downgrades” appear in a separate section of your statement bundled together, making it almost impossible to determine the exact rate charged for each transaction. Also different card processors provide very different amounts of information to the business about how each transaction is processed on tiered structures. This can make your goal of reducing your fees almost impossible as you are not given complete information about what you are paying for every transaction when you’re on a tiered structure.
The second type of fee structure is interchange-plus rates. This rate is essentially the amount charged by the leading credit card brands on credit card transactions plus a flat markup by the merchant bank. This is a more transparent and typically more affordable solution for businesses. However, it’s a pricing structure that has typically not been made available to customers with a small business merchant account — because of the low volume of business they do in credit card transactions each month, most merchant banks charge them the higher, tiered rate.
If this sounds unfair, then you need to consider Leap Payments. We offer interchange-plus pricing to all of our customers, eliminating obstacles which keep small businesses from competing on a level playing field. By allowing small businesses to have access to the best processing fees when they accept a credit card online or through a terminal, we save small businesses thousands of dollars each year — money which can go into growing your own business.
