What is the interchange ++ pricing method?

In the world of card processing, understanding the various pricing methods can be a daunting task. Interchange++  is a pricing method that has gained popularity. 

In this blog article, we will dive into the details of what interchange++ pricing is and how it can benefit businesses. By the end of the article, you'll have a clear understanding of this transparent payment method and its implications for merchants.

What is interchange ++? 

The interchange ++ pricing method, also known as Interchange Plus pricing or Cost Plus pricing, is a pricing structure commonly used in the payment processing industry. 

It is a transparent pricing model where merchants are charged the actual interchange fee set by the card networks (such as Visa or Mastercard) plus a fixed markup or percentage fee by the payment processor.

Example:

If Visa charged an interchange fee of 1€ per transaction and your payment gateway charges 2% per transaction, the actual fee you will be paying per transaction is: 1€ + (2%*transaction amount).

Under the interchange ++ pricing method, merchants pay the interchange fee, which is the fee paid to the card issuer for processing the transaction. This fee varies based on factors such as the type of card used, the transaction volume, and the merchant's industry. 

In addition to the interchange fee, the payment processor adds their markup, which is a fixed amount or a percentage of the transaction value, as their service fee.

This pricing model is often considered more transparent and fair compared to other pricing models, such as tiered pricing or bundled pricing. It allows merchants to see the actual interchange fees and the markup separately, providing greater visibility into the cost of payment processing.

By using the interchange ++ pricing method, merchants can have a clearer understanding of the cost structure associated with their payment processing services. It can also enable them to compare pricing between different payment processors and make more informed decisions regarding their payment processing needs.

Advantages of interchange ++ pricing for the merchant

1. Cost Transparency

Interchange++ pricing provides merchants with a transparent breakdown of the costs associated with credit card processing. By separating interchange fees from the markup or margin charged by payment processors, merchants can see the actual interchange fees incurred for each transaction. 

2. Cost Optimization

With interchange++ pricing, merchants have the opportunity to optimize their payment processing costs. By understanding the interchange fees for different types of transactions and cards, businesses can adjust their pricing strategies accordingly.

They can identify areas where they can reduce costs, such as encouraging the use of lower-cost card types or implementing measures to minimize fees associated with specific transactions.

3. Negotiation Power

Interchange++ pricing provides merchants with more negotiation power. While interchange fees are standardized by card networks, the markup or margin becomes the negotiable component. This allows businesses to negotiate specific terms and conditions with payment processors based on their transaction patterns, industry, and volume. 

Merchants can leverage their transaction volume and industry-specific factors to potentially secure more competitive rates and favorable pricing structures.

4. Cost Control and Budgeting

The visibility provided by interchange++ pricing allows merchants to have better control over their payment processing costs. By having a transparent breakdown of interchange fees and separate markups, businesses can accurately allocate costs, track expenses, and plan their budgets more effectively. 

This helps in financial management and enables businesses to make data-driven decisions.

Is interchange ++ the right pricing for your business?

Determining whether interchange++ pricing is the right pricing model for your business depends on various factors. Here are some considerations to help you evaluate if interchange++ pricing is suitable for your business:

1. Transaction volume

Interchange++ pricing tends to be more beneficial for businesses with a higher transaction volume. Since interchange fees make up a significant portion of the overall cost, businesses processing a large number of transactions can potentially negotiate lower markups and achieve cost savings.

2. Industry and card mix

Interchange fees vary across different industries and card types. If your business operates in an industry with lower interchange fees or primarily deals with cards that have lower fees (e.g., debit cards), interchange++ pricing can be advantageous. Understanding the interchange rates specific to your industry and card mix will help determine if the savings potential outweighs the associated costs.

3. Payment processor relationships

Interchange++ pricing requires a solid relationship with a payment processor or merchant services provider who offers this pricing model. Ensure that you have a trusted partner who understands your business and can provide competitive interchange++ pricing options.

Conclusion

Overall, interchange++ pricing offers advantages such as cost transparency, cost optimization, negotiation power and cost control. It provides merchants with the opportunity to optimize their payment processing costs, customize their pricing strategies, and enhance their overall financial management.

It's important to note that every business is unique, and what works for one may not work for another. It's recommended to consult with Silkpay to analyze your specific business requirements and provide guidance on the most suitable pricing model, including interchange++ pricing.

About the author: Silkpay

Based in Paris, Silkpay provides omnichannel and secure payment solutions to help physical stores and e-commerce in Europe accept more than 30 of the world's most popular payment methods: Visa, Mastercard, CB, UnionPay, Alipay+, WeChat Pay as well as Asia-Pacific’s major e-wallets.

Silkpay is a winner of the LVMH Innovation Award. The company was also selected as a finalist for the "Money 20/20" Best Startup and in the "MPE Berlin” Startup Awards. Silkpay also won the "Best Fintech" awards from Capgemini and BPCE.

Silkpay helps merchants deliver the smoothest payment experience to their customers. We are a talented and international team driven by a single goal: to improve the customer experience and make payments simple and secure.