Merchants utilizing Interchange-Plus Pricing Proceed to Overpay

Editor’s Note: Contributor Phil Hinke is a veteran of the credit card processing company. He consults with merchants to help lower their processing costs, considering that the credit card industry is often unfair to them. His latest post, below, addresses misconceptions with interchange and pricing that continue to cost money for merchants.

If you are reading my posts during the previous two decades, you know I am a major proponent of interchange and pricing for credit card processing. However, you also know from my posts that interchange and pricing does not necessarily mean your company has been priced correctly and competitively.

What is Interchange Plus Pricing?

Interchange and pricing means that the provider charges a set fee — state 0.10 percent + $0.05 — over the interchange rate (the fees that go into the bank that issued the card used to purchase the goods and services) and the pass-through fees (the fees charged by the card companies).

Why Do Merchants Overpay for Interchange Plus Processing?

When merchants on interchange and pricing contact me, they generally say something like,”We are on interchange and pricing [some say’cost plus’], so I’m sure our pricing is fine. However, we only want you to audit our statement.”

So far this month, each interchange plus merchant who sought my help was overpaying for card processing. Broadly , nearly all the interchange plus merchants who contact me, despite the month, are overpaying. And they are not just slightly overpaying. 1 ecommerce company I helped this month processes $2.7 million annually; it was overpaying by over $42,000 annually. I have seen smaller merchants overpay by bigger proportions.

One of the big reasons so many interchange plus merchants overpay is because providers have done a fantastic job of convincing merchants that interchange and pricing means reasonable pricing. Some providers claim that through interchange and pricing they are”giving back” Durbin Amendment — capping particular credit card transactions — money to merchants. Nobody is giving anything back. They are only passing through what rightfully belongs to the merchant.

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Other providers claim to be the merchant’s friend — even an impulse — for the merchant. I just audited a statement that a small merchant sent me from among these”merchant friends.” This merchant is currently overpaying by $15,000 annually. I’ll give the provider credit: there weren’t any hidden fees. It was just doing some old-fashioned gouging.

Additionally, I think card processing salespeople do a wonderful job of climbing the emotion quantity of merchants which are on tiered pricing, which has a certain amount of tiered rates — 3-tiered pricing is the most common — and all card transactions fall into these based pricing tiers. It can be easy for a salesperson to convince a merchant on tiered pricing an interchange and pricing program is reasonable and will save the merchant cash. What the salesperson might not clearly say is that their interchange and plan also has misleading fees.

In “Credit Card Processing: Interchange Plus Pricing not Necessarily Fair,” a 3-part series I wrote previously, I address some of the misleading prices and charges. I request that you read that show if you are currently on interchange and pricing or considering renegotiating your current pricing. You could be amazed by the misleading tactics some providers use.

Again, I am a proponent of interchange and pricing over tiered and flat-fee pricing applications. But, merchants must negotiate a fair price and await covert fees and other strategies.

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Renegotiating Rates or Changing Providers

Merchants must follow the processes I outlined in “How to Lower Credit Card Processing Costs and Acquire superior Conditions,” my 5-part series, when renegotiating rates and fees or negotiating with a new provider. You can not simply compare 1 interchange plus pricing provide to another just because you can not compare one tiered pricing offer to another.

There are no criteria which define how interchange and pricing is implemented and what additional fees or practices are used. The examples below illustrate how misleading some of the charges could be.

Example 1: Misleading ‘Foreign Handling Fee’

Just because”Visa” is stated on the statement doesn’t mean it is a Visa fee.
By means of example, I recently reviewed a statement that included a”Visa Foreign Handling Fee” that was, actually, simply a provider surcharge.

Visa and MasterCard do charge fees for transactions where an international card is used. Visa charges an “International Service Access fee” of 0.40 percent and an “International Acquirer fee” of 0.45 percent. From the statement I reviewed, the provider is passing through these Visa fees — as it should. But it was adding its own 0.20 percent”Visa Foreign Handling Fee.”

In the event that you should call someone in the provider’s customer service department, they would probably tell you it is a Visa fee. I am not saying that the person in customer support would lie. Just realize that the normal customer support person doesn’t understand interchange prices. The person would only see this as a Visa fee as it read”Visa” on the statement.

However, it’s not a Visa fee. It’s a provider surcharge. This merchant thought he had a outstanding interchange plus rate and didn’t realize he was paying an additional 0.20 percent provider fee for his international card firm, which represented a significant portion of his customers.

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Example 2: Refunds

Another example from a current interchange plus statement I reviewed contained refunds. When a merchant refunds a customer, a substantial part of the Visa and MasterCard interchange rate is reimbursed back to the provider. But that doesn’t mean the provider will pass it back to the merchant. From the statement I reviewed, the merchant should have received approximately $125 accountable for refunds. But he did not.

Some providers properly return the refunded interchange rate back to the merchant. Some keep it. And some really keep this, and charge the merchant full processing fees on the refund transaction.


  1. Many interchange plus merchants are overpaying despite what they have learned about interchange plus pricing.
  2. There are no standards for how interchange and pricing strategies are employed.
  3. Practice the negotiation processes in “How to Lower Credit Card Processing Costs and Acquire Improved Conditions,” to Make sure that you are being priced correctly.

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