Interchange plus (aka “cost plus”) pricing is a straightforward way to price. If you have cost plus pricing, it is more transparent because it is much more difficult to have hidden fees. In cost plus pricing, processors take all the bank fees, card brand fees etc, pass them straight through to the merchant, then add a markup (i.e 20%) for their fees. So, if you were being charged 20% using interchange pricing, you would say, I am being charged “cost plus 20”, which in general is a pretty good deal. You can check out all the interchange rates as they are published by Visa and MasterCard.
Overall, the best way to tell what you are being charged is to take all your fees and divide that by how much you processed in credit card sales. This is known as your effective rate.
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The fundamental flaw with other traditional pricing models is that they hide the interchange costs and allows processing companies to charge more of a markup. By consolidating a wide variety of rates into a smaller number of tiers, processors can essentially “round up” to the highest rate in each tier. While this may make your monthly statement a lot easier to read, it also means you’ll be paying higher rates for a lot of transactions – and you probably won’t be able to tell which transactions are being charged abnormally high rates.
By showing you the actual interchange costs, interchange-plus pricing allows you to more easily see what the markup is. This in turn encourages processors to set more reasonable markups. This transparency helps ensure you are getting the best rates.