Understanding Interchange Plus Pricing
In the complex world of credit card processing, merchants are charged fees for every transaction they accept. The most transparent and often most cost-effective pricing model is called "Interchange Plus" (also known as Cost Plus or Pass-Through pricing). Unlike flat-rate pricing (like Square or Stripe, which charge a flat 2.9% + $0.30 regardless of the card type), Interchange Plus separates the non-negotiable costs set by the card networks from the markup charged by the payment processor.
The "Interchange" part of the fee is the wholesale cost to process a credit card transaction. These rates are set by the major card networks (Visa, Mastercard, Discover, Amex) and are paid to the bank that issued the customer's credit card. Interchange rates vary wildly—there are hundreds of different rates based on the type of card (debit, basic credit, premium rewards, corporate), how the card is entered (swiped/dipped vs. manually keyed online), and the merchant's industry. Debit cards have very low interchange rates, while premium travel rewards cards have high rates.
The "Plus" part of the fee is the markup charged by your merchant service provider (the processor) for facilitating the transaction. This markup is typically expressed as a small percentage plus a per-transaction fixed fee (e.g., 0.20% + $0.10). In the Interchange Plus model, the processor passes the true wholesale interchange cost directly to the merchant and then adds their agreed-upon markup. This guarantees that when a customer uses a low-cost debit card, the merchant pays a lower total fee, passing the savings directly to the business.
For businesses processing significant volume (generally over $10,000/month), Interchange Plus is almost always cheaper than a flat-rate plan. Flat-rate providers must set their flat fee high enough to cover the most expensive rewards cards, meaning they make a massive profit margin when customers use cheap debit cards. Interchange Plus eliminates this arbitrary padding, providing true transparency into what processing actually costs.