Until recently, only the largest merchants have been able to obtain “Interchange-Plus” Pricing. Otherwise known as “interchange pass through” pricing, Interchange-Plus is the practice of pricing a merchant with a transaction fee and then passing the exact interchange and assessment costs from the Associations to the merchant…an increasingly competitive acquiring landscape, has significantly increased the percentage of merchants being quoted and paying Interchange-Plus.

Common practice was for acquirers to mark up and charge significantly more for “downgraded” transactions (those that did not qualify for the best rate applicable). These “downgrades” often comprised the majority of the profit acquirers received on merchants, as business owners focused mainly on the “qualified” or best rate. Interchange-Plus does not allow acquirers to increase profit on “downgraded” transactions.

In addition, the Associations (Visa and Mastercard) have made it a common practice to alter or add interchange rates/levels at least once a year, if not more. Each time changes occur, acquirers hustle to give their merchants notice and then alter merchant pricing accordingly. In many cases, acquirers take this opportunity to actually “pad” the increase and take additional profits. For example, if a blended (accounting for all changes and based upon the transaction history of a portfolio) interchange increase for an acquirer is 2.2 basis points, an acquirer might easily increase most merchants by 3.0 basis points. This “lift in margin” benefits acquirers and sales reps as they make more money per account with no additional sales work.

Acquirers only take money out of their own hands by accelerating the practice of Interchange-Plus pricing. … Over the long haul, by limiting the use of Interchange- Plus pricing you can simplify the sales and service cycle, increase your profits, and create greater long-term value in your portfolio.