What is Interchange Pricing?
Put simply, Interchange is the true cost of the card as agreed between the issuing bank and the credit card association (Mastercard, Visa, etc). This is the actual cost of each card that is used to purchase the merchant’s goods. The cost of this card is determined based on its associated risk and rewards.
For example, a cash back credit card will be more expensive to the merchant than a credit card that has no rewards.
Interchange has the greatest level of transparency, as it breaks down each card accepted and let’s you, the merchant, review this information.
What is Interchange Plus (aka Pass Through or Cost Plus)?
Interchange Plus combines the true cost of the card + the processor’s fees. The “plus” is added to all card types and can’t be avoided. It’s in effect a risk premium added by the credit card processing company which allows them to do business and operate.
However, while Interchange is a set price (aka the raw cost) based on the cards you accept, the “plus” component is decided by the processor. This is often where we see “padded” or added cost unbeknownst to the merchant.
In our experience, and based on analysis, we often determine that the Interchange rate that is reflected on the statement is not accurate or up to date, which in turn often means an increased cost to the merchant.