What is Interchange-Plus Pricing?

Oct 16, 2019

What is Interchange-Plus Pricing?

Most businesses choose to accept credit cards to provide a convenient payment option to their consumers. Of course, adding this option can help to secure more sales for the business, as well as attract new and returning customers. However, accepting credit cards comes at a price for merchants. Most credit card processors charge annual account fees, as well as interchange rates, which per-transaction fees that are passed on from credit card issuers such as Visa, MasterCard and American Express.

When it comes to paying these per-transaction rates, there are several options that may be available to merchants, depending on the processing company. These options include tiered pricing, fixed pricing and interchange-plus pricing, which is commonly thought to be the most transparent and reasonable pricing structure.

How Interchange-Plus Pricing Works

Interchange-plus pricing is paid to the credit card processor by the merchant and includes MasterCard or Visa interchange rates plus a nominal mark-up fee that the processor charges for taking on the risks associated with handling each transaction. As such, merchants that opt for a credit card processing plan with an interchange-plus pricing structure may find that the credit card processing rates they pay may vary depending on the card and how it’s processed.

With Visa, MasterCard and Discover debit and credit cards, interchange fees vary depending on the type of cards. Debit cards are typically associated with lower interchange rates, while premium and corporate cards, which usually come with higher credit limits and high-end rewards programs, are associated with higher interchange rates.

Because interchange-plus rates are highly dependent on risk, the rates vary depending on if the card is swiped or keyed. Keyed rates come with a higher risk of fraud and identity theft, which means the interchange rates charged by the card issuer and the interchange-plus rates charged by the processor are higher.

Average Swiped Card Interchange-Plus Rates

  • Visa Debit ranges from 1.650% + $0.15 to 2.450% + $0.10
  • Visa Credit ranges from 1.800% + $0.10 to 2.700% + $0.10
  • MasterCard Debit ranges from 1.600% + $0.15 to 0.050% + $0.22
  • MasterCard Credit ranges from 1.800% + $0.10 to 2.500% + $0.10
  • Discover Debit ranges from 1.020% + $0.16 to 1.620% + $0.16
  • Discover Credit ranges from 1.560% + $0.10 to 2.300% + $0.10

Average Keyed Card Interchange-Plus Rates

  • Visa Debit ranges from 0.800% + $0.15 to 0.050% + $0.22
  • Visa Credit ranges from 1.510% + $0.10 to 2.100% + $0.10
  • MasterCard Debit ranges from 1.050% + $0.15 to 0.050% + $0.22
  • MasterCard Credit ranges from 1.580% + $0.10 to 2.650% + $0.10
  • Discover Debit ranges from 1.620% + $0.16 to 0.050% + $0.10
  • Discover Credit ranges from 1.870% + $0.10 to 2.300% + $0.10

American Express Discount Rate

While Amercian Express uses a similar model to the interchange-plus fee structure, it’s processing plans don’t go by the same name. The American Express discount rate is charged as a transaction percentage plus a nominal fee, but instead of being based on the card type its based on the type of merchant the card is used at. These rates range from a flat 2.30% for supermarket transactions and may be as high as 3.50% + $0.05 for transactions processed in restaurants. Just as with Visa, MasterCard and Discover, transactions that are keyed instead of swiped are subject to additional fees.

Interchange Plus Pricing vs Tiered Pricing

While interchange-plus pricing provides merchants with a transparent fee structure that allows them to budget their expected output based on their average processing volume, tiered pricing can be a bit more complicated.

This fee structure breaks down per-transaction fees into three main categories:

Qualified Rate

A qualified rate transaction occurs when a customer pays for their goods or services using a standard debit or credit card in a card-present transaction.

Mid-Qualified Rate

A mid-qualified rate transaction occurs when a customer pays for their goods or services using rewards and loyalty cards. This rate also occurs to cards that are keyed in or processed in card-not-present transactions.

Non-Qualified Rate

Non-qualified rate transactions occur when customers pay for their goods or services using corporate cards or international cards. These cards carry the highest limits and therefore, are associated with the highest level of risk. As such, non-qualified rate transactions are the most costly for merchants.

The majority of credit card processors advertise their qualified rate as their per-transaction rate, which is appealing to merchants. However, the main issue with tiered pricing is that there are several scenarios that result in a downgrade — a qualified transaction being charged as a mid-qualified rate. This may occur if a qualified card is keyed in or a zipcode isn’t asked for to confirm the card holder’s identity. Unfortunately, because of these downgrades, it’s impossible for merchants to determine which rate category a transaction will fall under until after it’s been processed.

For more information on interchange-plus pricing for merchant accounts and our high-risk merchant services, contact PayDiverse.

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