Interchange is a percentage fee which the merchant service provider has to pay to the cardholder's issuing bank whenever they use their credit or debit card. This fee is paid for the benefits of accepting payments and covers handling costs including the risk involved in processing and settling the transaction.
All MerchantScout's preferred banking partners in EU/UK are able to provide interchange plus plus structure, which refers to a pricing model where the acquirer or payment provider will charge a merchant, for every card transaction, using a rate made of three components. Firstly, the basis is always the interchange percentage fee. On top of that, a card scheme fee is added, and lastly a fixed percentage is added by the provider. Sum of these three fees is the final rate that the merchant is being charged with for every transaction. The benefit of such pricing model over the fixed blended rate model is full transparency and thus normally results in lower overall fees.
Percentage fee charged to the acquirer by the cardholder's card issuing bank. There are over 100 variations of interchange fees possible. These fees are published on Card Scheme websites (such as Mastercard and Visa). The factors that determine the interchange fee are: transaction type (card-present or card-not-present); type of card used (consumer, corporate, specific type card) and most importantly the country location of merchant and location of card issuing bank. For example, the Visa interchange fee for a UK merchant selling online to UK or EU cardholders is as low as 0.20%, whereas if the same merchant would sell internationally to non-EU issued cards, the interchange fee can be as high as 1.80% (Q3 2018).
First "plus"; this is a fee charged to the acquirer by the Card Scheme (Visa, MasterCard) for using their network. These fees are typically lower than interchange ranging from 0.10% up to 0.65% for e-commerce. POS and MOTO transactions. Same as interchange fee, the card scheme fee is based on transaction type, card type and geographical relation between merchant and cardholder's issuing bank.
Second "plus"; a margin added by the acquirer or payment provider (processor) for providing card processing services. This is the source of profit for providers, meaning these can vary from one to other. It is mostly based on provider's risk exposure and merchant's MCC category code (High Risk MCC List). Rule of thumb with many providers is to charge a 1.00% markup (100 basis points), however with high volume merchants or lower risk categories this fee can usually go down to 0.50% or less.