Interchange Plus vs Three Tier

Benefits of “Interchange Plus”

“Interchange Plus” Pricing vs. Three Tier Billing

All Merchant Account providers have identical Interchange costs to process credit & debit cards.

Interchange Fees, which make up the bulk of what you pay in your Visa/MC rates and fees, are collected by your Merchant Account provider and paid back to the Issuing Banks (the banks that issue your customers’ credit and debit cards).

THE NEXT LARGEST PART OF WHAT YOU PAY IS THE MARKUP TO YOUR PROVIDER.

Most Merchant Account providers “simplify” the complex rates and fees of Interchange by “bundling” merchants’ rates into three artificial tiers or categories called Qualified / Mid Qualified / Non Qualified.

This allows processors to successfully hide their excessive markup (profit) by forcing inexpensive cards like Debit cards into the Qualified category, and downgrading Rewards & Corporate cards into Mid Qualified and Non Qualified categories.

“interchange-plus” is a bankcard industry term for a type of billing normally reserved for only the largest merchants. Interchange-plus is the practice of passing the exact interchange and assessment costs from the Associations to the merchant, plus a small fixed markup on top of each transaction for the processor’s revenue, risk management and customer support.

Here is a real world example that demonstrate how “interchange plus” pricing (where merchants have full transparency in their rates, fees and markup) results in significantly lower processing costs than “Three Tier Billing”.

For simplicity of the calculation, both examples assume a $100.00 transaction.

Example: eCommerce (Card Not Present):
Visa Signature Rewards Card (earns mileage/points etc)

The actual cost to key enter a Visa Signature Rewards card is 1.95% + $0.10 (Interchange) plus Assessments of 0.11% plus Auth/Capture/Settlement of $0.07. (This transaction will normally be processed at the Non-Qualified Rate in the case of eCommerce Three Tier Billing)

Visa Signature Rewards Interchange-Plus Pricing 3 Tier Billing = Qualified Rate
Actual Transaction Cost 2.06% + 17 cents 2.06% + 17 cents
Markup from Provider 0.20% + $0.13 1.69% + $0.08
Total Rate Merchant Pays 2.26% + $0.30 = $2.56 3.75% + $0.25 = $4.00
Merchant Receives $97.44 $96.00
Savings with
InterchangePlus Solutions
$1.44 SAVINGS

All Merchant Accounts have identical interchange fees and assessments, which are paid every time a cardholder makes a purchase using a credit or check card.

Interchange Fees are paid to the issuing banks (the banks that issue consumer’s credit and debit cards).

Assessments are paid directly to the card associations (Visa or MasterCard Brands).

The assessment rate for Visa is 0.11%.
If a cardholder makes a $100 purchase using a Visa credit or debit card, then the Visa Card Association will receive $0.11 in assessment fees.

The assessment rate for MasterCard is 0.11%.
If a cardholder makes a $100 purchase using a MasterCard credit or debit card, then the MasterCard Card Association will receive $0.11 in assessment fees.

Auth/Capture/Settlement are the fees to Authorize the transaction, Capture the funds from the Issuing Bank, and Settle the funds into the merchant’s checking account.

Full transparency from InterchangePlus Solutions:

For a list of current Visa and MasterCard interchange rates, please see:
http://usa.visa.com/merchants/operations/interchange_rates.html
http://www.mastercard.com/us/merchant/support/interchange_rates.html

EXPLANATION: The PLUS of “interchange plus” is the markup over Interchange cost represented in Basis Points (BP) and transaction fees. A Basis Point is equal to 1/100th of a percent. “PLUS” covers a small fixed markup on top of each transaction for the processor’s revenue, risk management and customer support.