Understanding credit card processing costs and choosing among different processor pricing models affect your bottom line. And to choose between interchange-plus pricing vs. tiered pricing, eCommerce merchants need to know the basics of interchange.
Interchange applies to the money transferred between banks: from your acquiring bank to the issuing bank for each payment card transaction. The card brands establish interchange rates twice annually, and these rates account for the bulk of credit card processing costs.
(Visa uses the term “interchange reimbursement fees” because the fees are charged to reimburse issuing banks for interest lost during the grace period between when a charge occurred and when it’s settled with the bank.)
When a consumer uses a payment card, the cardholder’s issuing bank pays the merchant’s acquiring bank for the purchase, minus the interchange fee for the transaction. The acquirer then pays the merchant the remaining balance minus their markup fee for processing the transaction.
Without getting too far into the weeds, just remember that when you hear interchange, it’s the portion of an eCommerce sale that goes to the issuing bank (the bank that issued the customer’s card).
Interchange fees are the backbone of payment processing, and therefore represent the pricing pillar of all payment processing models employed, including interchange-plus pricing vs. tiered pricing.
