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.