What is interchange?

Flat rate is not the best rate

​A Visa transaction can qualify for interchange rate (CPS/Restaurant) of 1.54% + 10 cents, and based on Aldelo Pay's Ultimate Pricing Plan, a $50 transaction will have a merchant cost of $0.96.

Comparing with a Flat Rate provider of 2.75% costing a merchant $1.38 for the same transaction. A merchant processing just 50 transactions per day can save over $7,500 per year.

Interchange Defined

Interchange are transactions fees that are paid by a merchant's bank (acquirer) to a cardholder's bank (issuer) whenever a customer uses their credit or debit card to make a purchase. These fees are paid to the card-issuing bank to cover costs such as fraud, bad debt, and risk involved in approving payments.

What are the interchange fees?

Interchange fees are not static and are adjusted twice a year from Visa and Mastercard. There are at least over 300 ways interchange fees are calculated, determined by variables such as if the card was swiped or keyed or if it's a reward card. Interchange rates also vary by business size and industry; for example, online retailers often pay higher interchange fees than physical stores that accept cards via swipe or EMV. Interchange fees make up by far the largest total fees paid to banks by merchants.

Do all businesses have to pay interchange fees?

Interchange fees are a part of doing business and are unavoidable. If you accept credit cards as a form of payment at your business, you will pay interchange fees. Some credit card processing companies will add the interchange cost and promote their fee as a flat rate, however this almost always result in merchants paying much more than Interchange Cost Plus pricing model.

What are "Interchange, Due & Assessments, and Association Fees"?

These fees relate to interchange and are what is considered as the wholesale cost that is the same for all merchants regardless of who the merchant service provider they choose. The fees collected are paid directly to the Card Associations for the use of the card brand, and the ability to process credit and debit transactions of Visa, MasterCard, Discover, and American Express payment networks.

Why Interchange Plus is the most transparent rate plan?

It's clear where your money is going between the card issuers and your processor when your rates are simply an interchange cost plus a flat markup on each transaction. This means you are opting in for clear merchant statements and lower transaction costs on average, since a higher rate would not be accounted to each transaction to cover potential scenarios (as you would see in Flat Rate pricing).

Here is an example of Interchange Plus versus Flat Rate

A restaurant merchant can qualify for an Interchange Program (CPS/Restaurant) of 1.54% + 10 Cents per swiped Visa non-reward credit card. Under the Interchange Plus pricing using Aldelo Pay's Ultimate as example, its processing cost would be 1.62% + 15 cents (1.54% + 10 cents interchange plus 0.08% + 5 cents merchant service provider markup). In contrast, merchant service providers offering a flat rate of lets say 2.75% per swipe, means you will pay 1.13% more on each transaction.

Taking the restaurant merchant example further, in today's card processing landscape, nearly half of payment cards processed are signature debit. These are the debit cards having the Visa or MasterCard logo and are processed as a credit card. Such debit cards issued by regulated banks (large banks) carry an interchange of only 0.05% + 21 cents per transaction, while a debit card issued by exempt banks (smaller banks) carry an interchange of just 1.19% + 10 cents. (Based on Visa CPS/Restaurant Regulated and Exempt Check Cards interchange programs)

It is very clear to see why Interchange Plus pricing enables a merchant far greater savings than a Flat Rate model. Under Interchange Plus, the merchant will always be paying the wholesale cost plus a known markup. It is transparent, simple, and money saving. On the other hand, a Flat Rate pricing charges a merchant let's say 2.75% regardless of the card type, so a Regulated Visa Check Card having a 0.05% + 21 cent interchange cost will still end up costing the merchant 2.75%. That's an unbelievable merchant cost of just $0.33 under Interchange Plus, versus an extremely high cost of $1.38 under Flat Rate, for a $50 Visa Regulated Check Card transaction!

​The higher the ticket, the larger the savings!

Flat rate pricing in the market tends to range between 2.70% to 4.50%. Under interchange plus, if the merchant service provider has a markup of 0.08% and 5 cents per transaction, that means the merchant's total cost of a transaction will be merely 0.08% and 5 cents above the wholesale costs for all credit card and signature debit transactions, regardless of qualifications or downgrades.

Lets say a merchant swipes a Visa credit card for $30, under Interchange Plus pricing of 0.08% and 5 cents, the processing cost to the merchant would be $0.64 (Based on Visa CPS/Restaurant interchange program), versus Flat Rate pricing of 2.75% where its processing cost would be $0.83 cents. That's an annual savings of over $3,400 under Interchange Plus if merchant processes just 50 such transactions a day.

Taking another example of the above for a transaction of $50, the merchant's processing cost under Interchange Plus pricing would have been $0.96. In contrast, the Flat Rate of 2.75% pricing, its processing cost would be $1.38. Again, Interchange Plus pricing helps a merchant save over $7,500 a year if only 50 such transactions were processed a day.

Lastly, revisiting the example of Visa Regulated Check Card interchange program savings mentioned above, using our examples here, a small ticket of just $25 incurs a $0.30 processing cost under Interchange Plus, while costing a merchant $0.83 under the Flat Rate of 2.75%. On an annual basis, that's a huge savings of over $9,500 under Interchange Plus when there are just 50 such signature debit cards processed a day.

On top of all of the above examples, the savings will be even more extreme if the card was keyed. Keyed Flat Rates could be as high as 3.50% to 4.50% + 30 cents per transaction. Wonder what the rate will be for Interchange Plus? The merchant service provider's markup is always the same regardless of Swiped, Dipped, Tapped, or Keyed. Only the interchange program changes which is the wholesale cost that is the same across all merchant service providers.

*Disclaimer: rates, formula, and savings for demonstration purpose only. Merchant's actual savings may be higher or lower based on individual processing volume.