What is Interchange?

In the credit card processing world, the term Interchange is quite common, it is also very often misunderstood.

A simple way to understand Interchange is to think of it as the wholesale rate the card brands (Visa, MasterCard, Discover and American Express) charge all of the processing companies. All processors, no matter how big or small, have the same interchange cost.

The interchange rate is made up of two components; the discount rate which is a percentage of the transaction amount, and a per transaction fee. The discount rate varies widely from .05% up to over 3%; the transaction fee component ranges from $0.05 to $0.22.

There are over 300 different card types and each one has its own interchange rate.

Ethix Pricing – Interchange Plus
Interchange plus pricing is the most aggressive pricing model for merchants, it is also the most transparent as you know exactly what the interchange rate is for each card type and exactly how much your credit card processor is making on your transactions.

Interchange plus pricing means the merchant pays the interchange rate (the exact wholesale rate is passed through) plus a fee to their credit card processor. That fee is usually measured in basis points. Each basis point is 1/100th of a percent.

For example, at Ethix we charge 25 basis points for a fee of 0.25%. If you ran a card-present transaction of $50 with an exempt Visa check card, the interchange fee would be 0.30% + $0.15. That gives you an interchange rate of $0.15 + $0.15 for a grand total of $0.30 for the transaction.

Interchange pricing is a bit complex, but it is important to understand what you are paying to minimize the cost of your payments system.

Smart Cards

smartcardBy now most people have seen or at least heard about the new credit and debit cards with chips in them – Smart Cards. These cards, while new here in the US, have been in Europe for more than a decade.

Banks in the US have begun to roll out these new cards; chances are if you have received a new or replacement card in 2015, it has a chip in it. In September of this year, all merchants in the US will be required by Visa and MasterCard to have updated equipment to be able to process these Smart Cards. Many merchants have had to upgrade to new terminals in the past several months and most are expected to do so by this Fall.

If you are processing credit cards at your retail location, you will need to upgrade your current system to be able to accept Smart Cards. If you are not sure what this entails or need any assistance with this process, we are happy to help, just reach out to us.

The Hidden Costs of Stripe and PayPal

DSCF7236We’ve received quite a few questions recently regarding how Ethix is different than processors like PayPal (who also owns Braintree) and Stripe, so we thought it would be a timely topic for a blog post. The biggest difference comes down to what merchants are really most concerned about: cost.


Both Stripe and PayPal/Braintree charge flat rate pricing, an increasingly popular cost structure for processors. And it’s easy to see why – simplicity is attractive. Flat rate pricing is easy to understand and it saves merchants from the annoyance of sifting through complex credit card processing statements. There’s no risk of missing some fine print and — at least on the surface – it appears to be totally transparent.

The flat rate pricing illusion

Flat rate pricing is simple. Credit card processing is not. In fact, flat rate pricing isn’t designed to be competitive at all–the attraction comes from the ease in which merchants can understand the structure. It’s a marketing tactic. With all the intricacies involved in credit card processing, it’s all but impossible for processors to charge a flat rate that is competitive while still remaining profitable as a company. Here’s why.

Whether they’re aware of it or not, every transaction a merchant processes incurs three fees:

  1. A fee to the issuing bank, e.g., Chase, B of A, etc. (interchange)
  2. A fee to the card brand, e.g., Mastercard or Visa (assessment)
  3. A fee to the credit card processor

While assessments are fixed costs, the interchange rate is not. This rate can vary from as low as 0.05% to over 3%. Processors that charge a flat rate need to account for every possible interchange rate. The good thing about flat rate pricing is that there’s no guesswork and it’s easy for a merchant to figure out how much it’s going to cost them to process their payments. Unfortunately this convenience comes at a cost of spending about 20% more than they have to on processing costs.

Stripe and PayPal/Braintree use a fixed percentage of volume pricing structure of 2.9% + $0.30 per transaction. This is on the higher end in comparison to interchange rates, and for merchants with low ticket transactions that extra $0.30 can be a real burden.

 “Interchange Plus” pricing optimizes costs

Quite simply, “interchange plus” pricing means the merchant pays the interchange rate plus a fee to their credit card processor. That fee is usually measured in basis points. Each basis point is 1/100th of a percent.

For example, at Ethix we charge 25 basis points for a fee of 0.25%. If you ran a card-present transaction of $50 with an exempt Visa check card, the interchange fee would be 0.30% + $0.15. That gives you an interchange rate of $0.15 + $0.15 for a grand total of $0.30 for the transaction. That same transaction through Stripe or PayPal would cost $1.75!


Another cost of processing with many flat rate processors is the funding timeline. Since companies like Stripe are technically payment aggregators, it’s not cost-effective for them to maintain the reserve required to fund their clients in a timely manner.

Through PayPal/Braintree, it takes 48 hours to receive your money. With Stripe, it takes a week. That’s seven days between purchase and funding, which can become a huge burden for many merchants, and can complicate accounting long-term.

And as for APIs…

Stripe and PayPal/Braintree are lauded for their developer-friendly APIs, and it’s no wonder. They’ve put together a collection of quality SOAP and REST APIs that allow businesses to have control over the customer-facing piece of their payment process. In fact, their APIs are so well-marketed that companies will often overlook the higher prices of processing. What these merchants don’t realize is that they don’t have to make that sort of sacrifice for simple, high-quality developer tools.

Payment processors like like our partner CardConnect provide SOAP and REST APIs and developer tools that rival the best in the industry. Plus, if you process with Ethix/CardConnect, you know your customer’s card data is protected with our patented tokenization process.

In summary

With a little education on pricing, business owners don’t have to settle for a flat-rate structure. Even smaller, low-volume businesses and startups should expect transparency, access to their money when they need it, and a full suite of developer tools. Expect more from your processor – you deserve it.


Tiered vs. Interchange Plus Pricing

tieredinterchangeplusVisa and MasterCard issue over 400 different card types in the US, each one of these card types has a wholesale cost all the processing companies pay, this wholesale cost is called Interchange and it’s the same price regardless of how big or how small the processor may be.

Typically with a tired pricing structure we see a qualified, mid qualified and non qualified tier.  With the tired pricing structure the processor takes all of those 400 plus card types and puts them in one of these buckets or tiers.  As a merchant, you pay that tiered price regardless of the actual Interchange price the processor pays.

With an Interchange Plus pricing structure the merchant pays the exact (pass-through) wholesale Interchange cost plus one fixed mark-up.

Margins for the processors on the tiered structure are usually much larger with a tiered structure; it can be as much as 1.00% or more on many of the card types.  Interchange pass-through margins are typically much lower, often below 0.50%.

Most small and mid sized merchants in the US are familiar with the long standing standard tiered pricing structure for merchant services.  Traditionally, the Interchange Plus structure has been reserved for larger merchants (over $100k/month in processing volume).

The standard mark-up we use at Ethix is 0.25%.  This offers a very fair and competitive price for our clients with complete transparency – you know exactly how much margin we are making.  We offer the Interchange pass-through rates to all of our clients, regardless of size.

If you are on a tiered structure with your current provider we invite you to contact us to see how much you could be saving with an Interchange pass-through pricing structure with Ethix.


What is Social Enterprise

Social enterprise is the broadening of the purpose of a private enterprise to include supporting the interests of its   local and/or global community.  It really means going beyond a purely private profit motivation in the way we do business.  It has grown steadily in the US and private companies have been eager to forge social enterprise relationships or evolve their own models in order to reap the rewards associated with social responsibility in today’s marketplace.  The next step is to really light a match under the explosive power of consumer spending and allow consumers to make knowledgeable and responsible decision about how they spend.  We at Ethix like to imagine a world where a tiny fraction of every dollar swiped finds it way into health, education, sustainability and all manner of public interests.   And remember, when you are out and about spending money, think about how and where you do that.  It makes all the difference in the world!

Top Five Mystery Facts About Your Merchant Services Account

The merchant services industry is not well known for being clear and transparent about the way it structures fees, leases and rents equipment and handles contracts.  Here are the answers to the five questions we most often run into.



1.  What rates are you paying and where are they on your statement?

Most merchants to do not have a good understanding of how they are being charged and how to decipher their statement to find out.  The industry makes it indecipherable as a way to prevent price comparisons that might loose them accounts.  Pricing is complex and statements often miss vital information that would allow the merchant to understand their fees.

2.  Do I have to switch my terminals if I change my processor?

You might think yes.  Most commonly the answer is no but this is used as a way to make merchants think that they have to stay with the processor who originally delivered their equipment.  You can change processors and keep your equipment in about 90% of cases with the exceptions being some more complex POS systems.

3.  Do I have to wait for my contract to expire to switch?

Simply put – NO!  You can switch anytime and may have to pay an early termination fee but that will likely be reimbursed by the new processor.

4.  Are you paying too much for your equipment?

Some processors deliver aggressive rates on transactions but charge hefty sums for equipment leasing.  These leasing contracts can amount to thousands of dollars over their term on equipment that is worth a couple of hundred bucks in most cases.  Ouch!  When you are asking yourself if you are getting a good deal, be sure and include leasing costs in the equation.

5.  Will switching processors affect my POS system?

No.  You might have to use something called middleware to translate between your POS system and your processing but you can, in most cases, switch processors and save a significant amount of money every month.  If you think your locked in, check.  You are probably not.

The bottom line is your bottom line.  It’s worth spending a few minutes finding out if you can get a better deal.  It is usually hundreds or thousands of dollars a year difference and we know you hate dealing with it, but drop us a line.  We are nice and we can help 🙂


Ethix for Schools

Education is part of our core mission here at Ethix and raising money for schools is a Community Partnership program that we are very excited about.

Most schools are already raising money from parents or their local community to save academic, athletic, artistic and after school programs that not covered by the ever declining education budgets.  Ethix is a powerful new tool in your efforts to give your kids a well rounded and comprehensive education that will help them imagine the future that they deserve.

We work with PTA and other school groups to assist you in introducing Ethix to business owners, be they parents or merchants in your local community.  We handle all aspects of the conversion of these businesses to the Ethix Program  and start sending your group the 25% donation monthly.  That is cash, residual income that you can rely on and put to work supporting your kids and your community.

Read more about the Ethix Community Partnership and drop us a line if you think this program will work for you.