Interchange plus is a form of credit card processing pricing. Once upon a time it was only available to large businesses with millions in sales. But times have changed, and even small businesses can now benefit from this inexpensive pricing model.Cost Effective
Calling interchange plus cost effective is a fancy way of saying that it's the cheapest credit card processing pricing model. There are those merchant account providers that will claim tiered and other forms are pricing are less expensive in certain instances, but they're mistaken, and not looking at the big picture.
Reason being is that interchange plus isn't just less expensive at the transaction level. As I'll explain more about in a minute, it also allows your business to receive credits on refunds and to reap the benefits from decreases in interchange rates.
Transparent
One of the most common complaints about credit card processing is that it's tough to tell what you're paying for, and to whom. Merchant processing statements are notoriously confusing, and deciphering them sometimes seems impossible.
A huge benefit to interchange plus is that it separates the three main areas of credit card processing cost. Interchange, assessments and processing markup are broken down and reported separately on your monthly processing statement. This clear, comprehensive reporting makes interchange plus the most transparent form of pricing.
Interchange Optimization
The largest contributor to processing cost is supposed to come from interchange fees. Interchange fees are base rates that are the same for all processors, and they're paid to the banks that issue credit cards.
Interchange optimization refers to the task of modifying the way you process credit cards to get the majority of your transactions to run at lowest interchange rate. By optimizing interchange expense, you cut the largest area of processing cost.
Interchange plus pricing makes it possible to optimize interchange expenses because transaction-level detail is reported on your monthly processing statement. This isn't the case with bundled pricing models that use a qualified, mid-qualified and non-qualified system to generalize actually interchange categories.
Interchange Credits
When you refund a credit or signature debit card sale you're supposed to get credited for a portion of the interchange fee paid on the original transaction.
Since processors don't generalize the actual cost of processing with interchange plus, credits for refunds are passed directly to you. In the case of businesses that issue a lot of refunds over the period of a month or a year, money recouped on interchange credits can be substantial.
You don't receive interchange credits for refunds if you're currently processing credit cards using a tiered pricing model. Instead, your processor keeps any money generated from your refunds. Lost revenue on refunds under a tiered pricing model is a perfect example of the hidden costs for which the processing industry is so notorious.
Consistent Markup
With interchange plus the processor's rate stays exactly the same for all types of cards and transaction methods. There's no guesswork involved in trying to figure out which transactions will be qualified, mid-qualified or non-qualified. Essentially, as far as the processor is concerned -- all of your transactions are qualified.
This consistent markup not only make interchange plus less expensive than bundled pricing models (qualified, mid-qualified and non-qualified rates), it also makes it much easier to reconcile processing costs.
With interchange plus a processor quotes you a single percentage such as 0.25%. This percentage is added directly to the actual cost of a transaction, which is the interchange fee.
For example, let's say two different businesses process the same Visa signature debit card and Visa consumer reward credit card. Business A is has a bundled pricing model with rates of 1.69% qualified and 2.25% mid-qualified. Business B has interchange plus 0.25%
Currently, Visa's swiped interchange fee (base rate for all businesses) is 0.95% for a signature debit card, and 1.65% for a consumer reward card.
Business A
Signature debit card:
1.69% (Qualified rate to processor), 0.95% (Actual cost) = 0.74% (Processor's markup)
Reward credit card:
2.25% (Mid-qualified rate to processor), 1.65% (Actual cost) = 0.60% (Processor's markup)
Business B
Signature debit card:
0.25% (Interchange plus to processor), 0.95% (actual cost) = 0.25% (Processor's markup)
Reward credit card:
0.25% (Interchange plus to processor), 1.65% (actual cost) = 0. 25% (Processor's markup)
Looking at our example, you'll notice that the markup for Business A differs while the markup for Business B stays the same. You'll also notice that Business A pays more to their processor for both transactions.
Save an average of 40% on credit card transactions by getting free interchange plus quotes at CardFellow.com.
By Ben Dwyer
Author Links
Business: http://www.cardfellow.com