Interchange Plus Pricing: How to Read the Markup and Spot the Padding
Interchange plus pricing means you pay the actual interchange fee on each card transaction, passed through at cost, plus a fixed markup your processor has to show you, usually written as basis points plus a cents-per-transaction fee. Quoted as "interchange plus 30 basis points and 10 cents", it means 0.30% of the sale and $0.10 per transaction on top of interchange and the card network fees. Everything the processor earns sits in that markup, so it's the only number you are really negotiating. It is the most transparent pricing model in card processing, and it still gets abused, mostly in the lines around the markup.
Most pages about interchange plus pricing are written by a payment processor selling it. They explain the idea and stop before the part where you open a statement.
So this one does the statement too.
What interchange plus pricing is
Every credit card transaction carries three costs. A payment processor that's honest about it shows you all three.
Interchange. The fee the customer's issuing bank collects on each sale. Your processor pays interchange fees on your behalf and bills them back to you. The card networks, Visa and Mastercard mainly, set interchange fees and publish the tables. Your processor can't change them and neither can you. I explained where it comes from in what interchange is.
Assessments and card network fees. What the credit card networks, Visa, Mastercard and Discover, charge for every payment card transaction on their rails. A small percentage of volume plus a scatter of per-item fees with names nobody remembers. Non-negotiable, and also not set by your processor.
The processor's markup. Everything else. This is the processor's fees, the acquiring bank's cut and the sales office's cut, all of it.
Under interchange plus pricing the first two are passed through at actual cost and the third is a fixed markup in your contract. That's why you'll also see it called cost-plus pricing or pass-through pricing. Same pricing model, different label.
Compare that with other pricing models. Flat rate pricing rolls all three into one number, and tiered pricing rolls them into three. In both cases the processor decides how much of the blend is cost and how much is profit, and you never see the true cost.
How interchange fees work under the markup
Interchange is not one rate. It's hundreds of fee categories, and which ones your transactions fall into depends on the card type, the transaction type, the transaction method and the merchant.
A debit card costs less than a credit card. Debit card transactions from large issuers fall under the Durbin Amendment, which caps regulated debit interchange well below what rewards credit cards carry. A basic consumer credit card costs less than a premium rewards card. A business card carries higher interchange fees again. Card present transactions, dipped or tapped at the counter, cost less than card not present transactions, keyed or online, because the fraud risk is higher when the card isn't there.
That's also the short answer to "why are interchange fees so high?" Interchange revenue is how issuing banks pay for rewards programs, fraud losses and the cost of carrying a balance. The richer the card, the more the merchant pays.
On flat rate processing, every one of those cards costs you the same. On interchange plus, each one costs what it costs, plus your fixed markup. When a customer pays with a regulated debit card, you get the benefit of lower interchange fees instead of the processor keeping it.
How interchange plus pricing works: reading the markup
Basis points
A basis point is one hundredth of a percent. 100 basis points is 1%. 30 basis points is 0.30%.
Processors quote the markup in basis points because the numbers are small. On a $10,000 month, 30 basis points is $30. On a $100,000 month it's $300.
The per-item fee
The second half of the markup is a fixed fee per transaction. Ten cents, fifteen cents, whatever you agreed.
This half matters more than people expect. On a $15 average ticket, 10 cents is 0.67% of every sale, more than double a 30 basis point markup. On a $400 average ticket it's 0.03% and you can ignore it. Before you compare quotes from two payment providers, work out your average ticket, because it decides which half of the markup to fight over.
One transaction, three layers
Illustrative numbers, nobody's quote, and not a current interchange table value. A $100 card present sale on a mid-tier consumer credit card:
| Layer | Illustrative rate | Fee on $100 |
|---|---|---|
| Interchange (to the card issuer) | 1.65% + $0.10 | $1.75 |
| Assessments and network fees (to the card network) | 0.14% | $0.14 |
| Processor's markup | 0.25% + $0.10 | $0.35 |
| Total | $2.24 |
The processor earned 35 cents. The rest belonged to somebody else before it reached you. On a daily discount setup, interchange comes off before the funds land in your bank account at all.
Run the same sale on a premium rewards card and the interchange line goes up. The markup line doesn't move. That's how interchange plus pricing works.
Interchange plus plus pricing (IC++)
Interchange plus plus, written IC++, is the same idea with the third layer named explicitly: interchange, plus card network fees, plus the processor's markup. Three columns instead of two.
The term is more common in Europe, where scheme fees were often bundled into the markup. In the US, most interchange plus statements already pass card network fees through as their own lines, so "interchange plus" and "interchange plus plus" usually describe the same thing.
Usually. Ask, in writing, whether card brand assessments and network fees pass through at the network's actual cost as separate lines. If they're folded into the markup, your markup is higher than it looks. If they're separate but marked up, see below.
A worked month: interchange plus pricing vs flat rate pricing vs tiered pricing
Same business, three pricing plans. A shop with $50,000 a month in transaction volume across 1,000 card payments, $50 average ticket, mostly in person payments with a normal mix of credit and debit cards.
All rates below are illustrative shapes, not anybody's current pricing. The interchange and network figures are a plausible blend for that mix, not a lookup from a table.
Interchange plus pricing
| Line | Basis | Fee |
|---|---|---|
| Interchange, passed through | blended ~1.80% across the mix | $900.00 |
| Assessments and network fees, passed through | ~0.15% | $75.00 |
| Markup, percentage | 30 bps on $50,000 | $150.00 |
| Markup, per item | $0.10 × 1,000 | $100.00 |
| Total | $1,225.00 | |
| Effective rate | 2.45% |
Flat rate pricing
Pick a shape: 2.75% plus 15 cents, every card, every transaction.
| Line | Basis | Fee |
|---|---|---|
| Percentage | 2.75% on $50,000 | $1,375.00 |
| Per transaction fee | $0.15 × 1,000 | $150.00 |
| Total | $1,525.00 | |
| Effective rate | 3.05% |
Tiered pricing
Tiered pricing sorts transactions into qualified, mid-qualified and non-qualified buckets, each with its own rate. The processor decides which card types land in which bucket, and that decision is where the money is.
| Bucket | Volume | Illustrative rate | Fee |
|---|---|---|---|
| Qualified | $20,000 | 1.79% | $358.00 |
| Mid-qualified | $17,500 | 2.49% | $435.75 |
| Non-qualified | $12,500 | 3.29% | $411.25 |
| Per item | 1,000 × $0.20 | $200.00 | |
| Total | $1,405.00 | ||
| Effective rate | 2.81% |
What the three tell you
On this mix, interchange plus pricing comes out $300 a month under flat rate pricing. That's $3,600 a year, for the same transactions, same cards, same customers.
Tiered lands in between, but the number is soft. Move $10,000 of volume from qualified to non-qualified, which the processor can do by reclassifying card types, and the tiered bill rises by $150 without anything on your side changing. On interchange plus pricing there's no bucket to move things into.
The gap moves with your mix. Lots of debit card payments widens it, because flat rate charges the same 2.75% on a debit card whose interchange cost is a fraction of that. Mostly premium rewards cards and card not present volume narrows it.
Processor sites claim businesses save 25% on average by switching to interchange plus pricing. I can't verify that, and it depends entirely on what you paid before. Run your own numbers.
Where the markup hides in credit card processing fees
Interchange plus pricing is the most transparent fee structure in payment processing. That describes what it can show you, not what every statement does. Here's where the hidden fees go.
Markup dressed up as card network fees
The cleanest trick. The statement shows your agreed markup, then a block of "network fees" or "card brand fees". Some are genuine pass-throughs. Some are the processor's own charges, named to sound like Visa invented them.
Real card network fees have recognisable names that match the networks' own schedules. A line called "network access fee" or "brand processing fee" that you can't trace to a network, charged as a percentage of all volume, deserves a phone call. Our statement fees glossary lists the genuine ones.
Padded assessments
The network fee is real, but the processor bills more than the network charges. Assessments are a small percentage, and a statement showing 0.16% where the network charged 0.14% looks like noise. On $50,000 a month it's $10. On every account that processor has, it's a business model.
The fix is the same as above: ask for card network fees at actual cost, and compare the percentage on the statement against the card brand's published assessment for your volume type. If the processor won't confirm they're passed through at cost, assume they aren't.
Monthly add-ons
The markup isn't only basis points and cents. Look for the fixed monthly fees around it.
Statement fee. Annual fee. PCI fee, and PCI non-compliance fee. Monthly minimum. Batch fee. Gateway fee. "Regulatory" or "compliance" fee. Authorization fees charged on top of the per item fee, so the 10 cents you negotiated is actually 10 cents plus another 5 per auth.
None of those are interchange. All of them are processing fees the processor keeps. Add them to the markup before you compare quotes, because a 20 basis point markup with $95 a month in add-ons is not cheaper than a 30 basis point markup with none on a small account.
Interchange rates that aren't interchange
Rarer, but it happens. The interchange column shows rates a little higher than the published tables, because the processor has quietly marked up interchange itself.
Spot-check a few categories against the published table for that period. Visa and Mastercard publish their US interchange rates. You don't need to check all of them.
The markup that moves
The networks republish interchange tables, usually spring and autumn. A dishonest processor raises its own markup on the same notice, and the merchant blames the card networks. If your rate went up, our post on why processing rates go up shows how to tell which part moved.
Your markup should only change when you agree to it. Read the change-of-terms clause before you sign.
How to check your own statement
Total processing fees divided by total card volume. That's your effective rate, and it's the one number nobody can dress up. The effective rate calculator does the division if you'd rather not.
Then go line by line. Find the interchange total, the network fee total and everything else. Everything else is what your business pays the processor. Divide that by volume and you've found your real markup, including the add-ons. How to read a merchant statement shows where each number sits on the usual statement layouts.
Three questions get you most of the way:
- Is my markup the same in basis points and cents as my agreement says?
- Are card network fees passed through at actual cost, as separate lines?
- What monthly fees am I paying that aren't per transaction?
If the statement can't answer the first one, you're probably not on interchange plus pricing, whatever the contract called it. Some processors sell "interchange plus" and then deliver a summary statement with one blended number. That's flat rate wearing a different name.
When interchange plus pricing is the right choice
It suits
Businesses with steady volume. Once you're processing a meaningful amount every month, the difference between a fixed markup and a blended rate becomes real money. At high sales volume the markup itself becomes negotiable, and some processors build volume-based discounts into it.
Card present businesses with debit traffic. Retail, restaurants, convenience, salons. Lots of debit cards and in person payments means a lot of low-interchange transactions, and on flat rate you're subsidising everyone else's rewards cards.
A business owner who wants to see what they're paying. Interchange plus pricing produces itemized monthly statements with the transaction details behind each fee. If you or your bookkeeper will actually read them, the transparency pays for itself.
Larger average tickets. The per item fee disappears. High volume businesses with big tickets get the most out of it.
It may not suit
Very low volume. If you're running a few thousand dollars a month, the dollar difference is small and flat rate's simplicity is worth something. Most payment service providers that sign you up in five minutes sell flat rate for exactly this reason, and it's a defensible choice at the start, higher fees and all.
Owners who need a predictable bill. Your monthly bill varies on interchange plus pricing because the card mix varies. Same volume, different cards, different total. If your cash flow is tight enough that the swing matters more than the extra cost of a flat fee, that's a real trade.
Mostly premium cards and card not present. If nearly everything you take is a rewards card keyed or online, your interchange costs are high whatever the pricing plan, and the gap to flat rate is narrower. It's still usually cheaper, but run the numbers before switching for the sake of it.
And the alternative to both
If what you really want is to stop paying most of the fee, the answer isn't a pricing model with lower fees. It's a posted cash price and a card price, so the customer who chooses the expensive payment method covers it. That's also the honest answer to "how to avoid a 3% transaction fee". Our cash discount vs surcharge guide lays out the difference, including the part that catches people: card brand rules prohibit surcharging debit cards, even when they're run as credit.
Questions people ask
What is an interchange plus rate? Your quoted markup on top of interchange, written as basis points plus a per-transaction fee. "IC + 0.30% + $0.10" means 30 basis points and 10 cents above actual cost.
What is the interchange rate today? There isn't one. There are hundreds, set by each card network by card type, merchant category and transaction method, republished a couple of times a year. Anyone quoting "the" interchange rate is giving you an average they chose.
How much is a typical interchange fee? Regulated debit is low, basic consumer credit is in the middle, premium rewards, business and card not present transactions sit at the top. I'm not printing table values because they go stale. Check the networks' own published schedules for the current period.
Who pays interchange fees? The merchant pays. Credit card processors deduct or bill it and pass it to the card issuer, which keeps it. That's where most of your credit card fees go.
How do I reduce interchange fees? You can't negotiate interchange, but you can avoid paying more than you should. Take cards present where you can instead of keying them. Settle batches daily. If you sell to businesses, pass the extra data that Level 2 and Level 3 categories ask for. Beyond that, lowering your processing costs means lowering the markup.
Common mistakes
Comparing markups and ignoring monthly add-ons. A low basis point number with $90 of fees around it is not low.
Assuming anything labelled "network fee" belongs to Visa.
Signing "interchange plus" and never checking that the statement shows interchange.
Fighting over basis points on a $15 ticket, where the cents are the decision.
Letting the processor raise the markup in the same letter as an interchange update, and blaming the card networks.
Send a statement
Three months of merchant statements is all we need. We'll split out what was interchange, what was card network fees and what was markup, give you your effective rate and your real markup including every monthly add-on, and tell you whether interchange plus or a posted cash price fits your business better.
We're an independent sales organisation, so there's no one processor's product we have to defend. We shop the account, negotiate the markup on your side of the table, and you get one named person to call instead of a queue. No contract, month to month, cancel any time at no cost, no early termination fee.
Send a statement and get a free savings analysis. If your markup is already fair, we'll tell you so and leave you alone.
