In this section, we’ll break down what "interchange" means and how it impacts the overall cost for businesses that accept credit card payments. We’ll also explain the key players involved in the process.

Key Terms to Know:

• Issuing Bank: This is the bank or financial institution that provides the credit card to the consumer.

• Acquirer (or ISO): An acquirer, often known as an Independent Sales Organization, sells credit card processing services and manages the merchant account, including billing and support. They operate with a sponsoring bank behind the scenes.

• Processor: This is the technology provider responsible for handling secure credit card transactions and transferring funds to the merchant. They connect with the business through gateways, terminals, or POS systems to process payments securely.

What is Interchange?

Interchange fees, set by Visa and MasterCard, are paid by the acquirer to the issuing bank each time a transaction is processed. These fees act as an incentive for banks to issue cards. There are hundreds of interchange categories, and rates vary depending on how the card is used, when the transaction is settled, and the type of business. Although merchants don't pay these fees directly, they are typically the largest component of the overall cost passed down by the processor.

Assessments (Dues & Fees)

In addition to interchange, assessment fees are collected by Visa and MasterCard to cover the costs of maintaining and operating their networks. These fees are also passed on to the merchant but usually represent a smaller portion of the total.

Pricing Structures

The total cost to a business depends largely on the pricing model used by the processor. The two most common are:

• Interchange Plus: This model passes the actual interchange costs directly to the merchant, along with a transparent markup (the “plus”). It allows businesses to clearly see their processing costs and makes it easier to compare providers.

• Tiered Pricing: In this model, different types of transactions are grouped into pricing tiers (e.g., qualified, mid-qualified, non-qualified). These tiers bundle various interchange rates into broad categories with set prices, which can often result in higher overall costs due to lack of transparency.

Some providers also use hybrid pricing models that appear to be interchange-plus but include hidden markups. These details are usually tucked away in the fine print of the merchant agreement—so it’s important to review the terms carefully.

Final Thoughts

When evaluating a payment processor, it’s essential to look beyond just the transaction rate. Consider factors like total processing cost, monthly fees, contract length, hidden charges, and service/support quality. If you're currently processing payments, we offer a free, no-obligation review and consulting of your current plan to help identify potential savings.

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