Interchange-plus pricing is a merchant processing fee structure where the processor charges the actual interchange rate for each transaction plus a fixed markup. The interchange component passes through to the merchant at cost with no markup, and the processor’s profit is the fixed basis point and per-transaction fee added on top. This structure makes processing costs fully transparent and directly tied to the actual cost of each transaction.
Under interchange-plus pricing, a merchant might pay interchange plus 20 basis points and $0.10 per transaction. The interchange portion varies by card type and transaction type while the markup remains constant. When a cardholder pays with a rewards card that attracts higher interchange, the merchant pays more. When they pay with a standard debit card, the merchant pays less. The merchant sees both components clearly on their processing statement.
Interchange-plus is generally considered the most transparent and often the most cost-effective pricing model for merchants with significant processing volume, as it eliminates the hidden margins embedded in tiered and flat-rate pricing structures.
Diving Deeper into Interchange-Plus Pricing
Interchange-plus pricing emerged as an alternative to tiered pricing in response to merchant demand for transparency in processing costs. Under tiered pricing, processors bundle interchange, assessments, and their own markup into a small number of rate buckets, making it impossible for merchants to understand what they are actually paying for or to verify that they are being charged correctly. Interchange-plus solved this by separating the pass-through costs from the processor markup, giving merchants a clear view of each component.
The model is now standard for larger merchants and is increasingly available to smaller businesses as processing has become more competitive. Understanding how interchange-plus works, how to read an interchange-plus statement, and how to evaluate interchange-plus quotes from different processors is fundamental to managing payment processing costs effectively.
The Structure of Interchange-Plus Pricing
An interchange-plus quote has two components. The first is the interchange pass-through, which represents the actual interchange rate charged by the card networks for each transaction. This component is not set by the processor and cannot be negotiated. The second is the processor markup, which is the processor’s fee for their services. This is the only component that varies between processors and the only component that is negotiable.
The markup is typically expressed as a combination of a percentage of the transaction amount and a flat per-transaction fee. A common markup might be 0.20% plus $0.10, meaning the processor charges 20 basis points on the transaction amount plus ten cents per transaction on top of whatever interchange applies.
How to Read an Interchange-Plus Statement
An interchange-plus processing statement lists each interchange category that appeared in the merchant’s transaction mix during the statement period, the number of transactions that qualified at each category, the volume, and the rate. The processor’s markup appears as a separate line item applied uniformly across all transactions.
This structure allows merchants to verify that interchange is being passed through correctly, identify the distribution of card types in their transaction mix, spot transactions that have downgraded to higher interchange categories, and calculate the total effective rate across their entire volume.
Merchants who review their interchange-plus statements regularly can identify opportunities to improve interchange qualification, understand the true cost impact of different card types in their mix, and detect billing errors or unauthorized markups.
Interchange-Plus vs. Tiered Pricing
Tiered pricing groups all transactions into a small number of buckets, typically qualified, mid-qualified, and non-qualified, each with a single blended rate. The processor determines which transactions fall into which bucket and sets the rates for each bucket. This structure benefits the processor because they capture the spread between the actual interchange cost and the tiered rate charged to the merchant. Merchants have no visibility into this spread and no way to verify that transactions are being bucketed correctly.
Interchange-plus eliminates this opacity. The merchant pays exactly what the card networks charge for interchange, plus a known, fixed markup. There is no hidden margin on card type mix, no downgrade manipulation, and no ability for the processor to increase effective margins by reclassifying transactions.
For most merchants processing more than a few thousand dollars per month, interchange-plus results in lower total processing costs than tiered pricing from the same processor, simply because it eliminates the spread the processor captures under tiered pricing.
Evaluating Interchange-Plus Quotes
When comparing interchange-plus quotes from different processors, the processor markup is the key variable since interchange pass-through should be identical across all processors for the same transactions. A lower markup is generally better, but the comparison must account for all fees, not just the percentage markup and per-transaction fee.
Monthly fees, PCI compliance fees, gateway fees, chargeback fees, and other ancillary charges all affect the total cost of processing. A processor with a slightly higher markup but no monthly fees may be less expensive than a processor with a lower markup but significant monthly minimums and ancillary charges, particularly for lower-volume merchants.
Interchange-Plus for ISOs and Payfacs
ISOs and payment facilitators who price merchants on interchange-plus earn their margin as the spread between the interchange-plus rate they charge the merchant and the rate they pay their processor or acquiring bank. A well-run ISO prices merchants at interchange plus 30 basis points and $0.10 while paying their processor interchange plus 10 basis points and $0.05, earning 20 basis points and $0.05 per transaction as their residual margin.
This structure makes residual income directly tied to volume and card mix, which creates strong alignment between the ISO’s interests and the merchant’s processing activity.