I once read a quote that said “Genius is the ability to reduce the complicated to the simple” and it has shaped my life over the years. The definition of the (KISS Method) is “keep it simple stupid” or acronyms are “keep it short and simple” and “keep it simple and straightforward”.

Pick which one you desire but let’s take a look to see how we can simplify Interchange-Plus Pricing and help you get a solid understanding of what it is and how it works for your credit card processing or merchant account. The most important part of Interchange pricing is it “saves you money” and at BestofCategoryReviews you can get instant interchange plus quotes from multiple (MSPs) merchant service providers along with unbiased reviews.

What is Interchange?

A preset rate by type of card determined by Visa, MasterCard, and Discover which is updated twice a year. The interchange rate or cost is what your MSP pays to the issuing bank, the bank that issued your actual credit card.

The wikipedia definition is in a credit card or debit card transaction, the card-issuing bank in a payment transaction deducts the interchange fee from the amount it pays the acquiring bank that handles a credit or debit card transaction for a merchant. The acquiring bank then pays the merchant the amount of the transaction minus both the interchange fee and an additional, usually smaller, fee for the acquiring bank or ISO, which is often referred to as a discount rate, an add-on rate, or passthru. For cash withdrawal transactions at ATMs, however, the fees are paid by the card-issuing bank to the acquiring bank (for the maintenance of the machine).

To see a more in depth look at how interchange works click on below link:

http://usa.visa.com/download/corporate/_media/visa-interchange-brochure_07-09-12.pdf

Interchange-Plus Pricing…..Why is it the best pricing structure?

Simplified, you pay the true cost of each card type (determined by the card networks) a percentage fee plus a small markup from your (MSP) Merchant Service Provider called a discount rate percentage and transaction fee.

There are literally hundreds of different card types and purchasing scenarios and the actual cost of interchange can range anywhere from 0.05% – 2.95% depending on the type of cards you’re receiving from customers.

Example: 

The cost of a regulated debit card is 0.05% plus a $0.21 transaction or item fee. If your interchange-plus rate is 0.30%, you’d be charged the true cost of 0.05% plus your rate of 0.30% = 0.35% plus the transaction cost of $0.21 plus the transaction fee markup from the MSP.  (This is one example of several hundred scenarios)

Interchange Fees are updated twice per year in April and October. We have provided links below for the latest interchange schedules for both Visa and MasterCard.

Visa-USA-Interchange-Fees.pdf

MasterCard Interchange Rates.html

If you accept a fair amount of debit cards, you’re probably doing some quick math in your head saying OMG my current rate is much higher, why didn’t I know about this before? The simple answer is the agent or MSP that signed you up for your merchant account didn’t offer interchange pricing because they don’t make as much money as they would if you were on a tiered rate or the MSP only offers to high volume merchants. To learn more about tiered pricing click below:

Click Here for: Tiered Pricing: Run as Fast as you can!

Interchange Resources:

Wikipedia’s Interchange definition entry

usa.visa.com Interchange pdf

Visa’s interchange reimbursement fees

MasterCard Interchange Rates and Criteria