While assessments are fixed costs, the interchange rate is not. This rate can vary from as low as 0.05% to over 3%. Processors that charge a flat rate need to account for every possible interchange rate. The good thing about flat rate pricing is that there’s no guesswork and it’s easy for a merchant to figure out how much it’s going to cost them to process their payments.
Unfortunately this convenience comes at a cost of spending about 20% more than they have to on processing costs.
Stripe and PayPal/Braintree use a fixed percentage of volume pricing structure of 2.9% + $0.30 per transaction. This is on the higher end in comparison to interchange rates, and for merchants with low ticket transactions that extra $0.30 can be a real burden.
Interchange Plus – Optimizes Costs
Quite simply, “interchange plus” pricing means the merchant pays the interchange rate plus a fee to their credit card processor. That fee is usually measured in basis points. Each basis point is 1/100th of a percent. Fixed credit card transaction costs.
For example, let’s say you’re a retail business working with a processor that charges 70 basis points for a fee of 0.70%. If you ran a card-present transaction of $50 with an exempt Visa check card, the interchange fee would be 0.80% + $0.15 for a combined rate of 1.5%.
That gives you an interchange rate of $0.75 + $0.15 for a grand total of $0.90 for the transaction. That same transaction through Stripe or PayPal/Braintree would cost $1.75! A total savings of 48.6%!