Interchange Plus vs. Tiered Pricing

Interchange plus and tier pricing are two common models used in payment processing:

1. Interchange Plus Pricing:

   • In this model, merchants are charged the interchange fee set by card networks (like Visa or Mastercard) plus a markup by the payment processor.
   • The interchange fee is a non-negotiable rate set by the card networks for each transaction, based on factors like card type, transaction volume, and risk.
   • The processor adds their own markup, which can be a fixed fee per transaction or a percentage of the transaction amount.
   • Interchange plus pricing offers transparency as merchants can see exactly how much they’re paying in interchange fees and how much is being charged by the processor.

2. Tier Pricing:

   • Tier pricing groups transactions into different categories or “tiers” based on factors such as card type, transaction volume, and risk.
   • Each tier has a set rate or fee structure determined by the processor.
   • Transactions are then processed at the rate corresponding to their tier.
   • Tier pricing can be less transparent than interchange plus, as merchants may not always know which tier their transactions will fall into and the criteria for tier classification may not be disclosed.
   • While tier pricing can simplify billing, it may result in merchants paying higher overall fees, especially if many transactions fall into higher-priced tiers.