Interchange-Plus Pricing Examples

Let's start an example!

Now that you understand interchange and interchange-plus pricing, we can perform a sample transaction so you can see how all of this works. Remember - all transactions have 3 components: interchange, card brand fees (Visa/MasterCard/Disc fees), and merchant service provider fees.

Let's start with a $100 sale. For the sake of our example, we'll assume that this sale was a swiped transaction. Let's look at how four different card types would fare under interchange-plus pricing. In our experience, we've found that most retail organizations will accept a large percentage of debit cards, (sometimes as high as 50% of the total transactions) thus reinforcing the advantages of an interchange-plus pricing model.

Let's Do the Math

Card Type

Interchange

Card Brand Fees

Merchant Fees

Final Rate

Total Fees

Visa Regulated Debit 0.05% + $0.22 0.11% + $0.02 0.25% + $0.10 0.41% + $0.34 $0.75
Visa CPS Retail 1.51% + $0.10 0.11% + $0.02 0.25% + $0.10 1.87% + $0.22 $2.09
Visa Rewards  1.61% + $0.10 0.11% + $0.02 0.25% + $0.10 1.97% + $0.22 $2.19
MasterCard World Card 2.05% + $0.10 0.12% + $0.02 0.25% + $0.10 2.42% + $0.22 $2.64
Total (average)     1.67% + $0.25 $1.92

 

Where is that money going?

Let's look at the below chart to get an idea of where those fees are going!

Fees $ Value % of Total
Interchange Fees $5.74 74.84%
Card Brand Fees $0.53 6.91%
Dharma Fees $1.40 18.25%
Total $7.67 100%

As you can see, the vast majority of the fees are going back to the card-issuing banks. In the above examples, these four transactions represented $400 in processing, and a total of $7.67 in total fees. Interchange fees represented over 74% of the total cost for the transaction, and V/MC took another 6.9%. Only 18% went to Dharma! It's imporant to be able to distinguish between interchange fees, card association fees (that's Visa/MasterCard/Discover), and merchant service fees. In our next article, we'll show why tiered pricing, or variations of it, are inherently disadvantageous pricing models for merchants. They take advantage of the mystery surrounding interchange - so be wary. Interchange fees often represent less than 50% of total fees in tiered pricing models. Click below for more:

 

Click here for: Tiered Pricing: Just Say No!

 

 

 

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