The short answer
When interchange changes, interchange-plus pricing usually passes the change straight through: interchange is billed at cost and the processor's markup stays the same, so a lower interchange rate shows up on your statement, and so does a higher one. On flat-rate or tiered pricing you pay a set rate that already includes interchange, so a change in interchange does not have to change your rate; depending on your agreement, the processor may keep the difference when interchange falls or raise your rate when costs rise. To know which applies to you, read your pricing schedule and ask your processor in writing how interchange changes are handled.
Why interchange moves
Interchange is the fee paid to the bank that issued your customer's card, set by the card networks for each card type and way of taking the card. Visa and Mastercard publish their US schedules and update them from time to time. Rates can also change through regulation, such as the Federal Reserve's Regulation II cap on interchange for large-bank debit cards, or through legal settlements, such as the proposed Visa and Mastercard settlement that, if approved, would trim credit interchange by 10 basis points for five years. Each of these changes the cost your processor pays. What happens to your price next is set by your agreement.
Background: Visa and Mastercard settlement: what may change · Regulation II and the debit interchange cap
How interchange-plus handles a change
On interchange-plus pricing, every sale is billed as three parts: interchange at cost, card network fees at cost, and the processor's markup, which is usually a percentage, a per-transaction fee, or both. When interchange falls, the first part falls and the markup stays where your contract put it, so the saving shows up on your statement. When interchange rises, you pay that too. The model does not make you cheaper by itself; it makes changes visible. The points to check are that your agreement really says interchange is passed through at cost, and what notice the processor must give before it changes the markup.
How flat-rate and tiered pricing handle a change
A flat rate charges one percentage, often plus a per-transaction fee, for most card sales. Interchange is inside that number, so when interchange falls the processor's margin grows unless it chooses, or your agreement requires it, to lower your rate. When costs rise, a flat-rate provider may raise its rate with notice. Tiered pricing sorts sales into qualified, mid-qualified and non-qualified groups that the processor defines, and a change in interchange can shift both the cost and the tier a card lands in without any change you can see. Flat pricing buys a predictable bill. The trade-off is that you may never see a reduction.
More on blended pricing: Tiered pricing explained · Interchange-plus vs flat rate vs tiered pricing
How each model reacts
| Interchange-plus | Flat rate | Tiered | |
|---|---|---|---|
| Interchange goes down | Your cost goes down by the same amount | Rate stays the same unless the processor lowers it | Tier rates usually stay the same |
| Interchange goes up | Your cost goes up by the same amount | Processor may raise the rate with notice | Processor may raise rates or move cards between tiers |
| What the statement shows | Interchange, network fees and markup on separate lines | One rate | A few tier rates, without interchange detail |
| Who decides what you pay | Card networks for interchange, your contract for the markup | The processor, within your contract | The processor, within your contract |
This table describes how the models usually work. Your own agreement can say something different, which is why the questions below matter.
Questions to ask your processor
1. Is interchange on my account passed through at cost, or included in my rate? 2. If interchange goes down, will my cost go down with it, and from which statement? 3. If interchange or network fees go up, how much notice will I get, and can I leave without a penalty? 4. Can my markup or flat rate change during the term, and how am I told? 5. Will new card network fees appear as separate lines, or be added to my rate? Ask for the answers in writing and keep them with your agreement. In Canada, the Code of Conduct for the Payment Card Industry sets notice rules for fee changes; our guide explains them.
Related: Canada's Code of Conduct for the Payment Card Industry · When should you move to interchange-plus pricing?
Which model suits small, mid-sized and enterprise businesses
A small business with modest card sales may value a flat rate's simple, predictable bill, as long as the owner knows that interchange cuts may not reach it and checks the effective rate once in a while. A mid-sized business is usually where the choice matters most: card volume is large enough that a fixed markup over interchange can be compared line by line, so ask for an interchange-plus quote and compare both offers using your effective rate on the same month of sales. An enterprise or multi-location merchant should ask for pass-through pricing with the markup fixed in the contract, interchange and network fees reported by card type, location and channel, and a written process for how new network fees are handled, so that every rate change, in either direction, can be measured.
Find out how you are priced
CELER Merchants is an independent agent, not a processor. Send us a recent statement and we will tell you which pricing model you are on, how interchange changes would reach you, and your effective rate from your own numbers. The review is free and there is no obligation.
Start here: Free statement analysis · Contact CELER Merchants
Key takeaways
- Interchange is set by the card networks and paid to the bank that issued the card
- Interchange-plus: interchange at cost plus a fixed markup, so changes are visible
- Flat and tiered rates fold interchange into one number that does not have to move
- Your agreement, not the network, decides whether a change reaches you
- Ask in writing how increases and decreases are handled, and with what notice
Related guides
Sources
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