iSmart Payments what’s you to be in the know. Many business owners are familiar with the term Interchange Plus Pricing. What this amounts to is that each of the card types has its own established pure cost pricing structure, the fee that is charged to the merchant service providers for each card type. This is the case with North American Bancard and all other merchant service providers. This is an established pure cost interchange for processing each and every card transaction.

Adding Fees On Top To Be In Business

The merchant service provider (processor), then adds on additional fees to process card transactions for your business. These extra fees support them in running their processing business. This is where the plus comes in when we say “interchange plus”. This is that small percent of plus money they receive proceeds from merchants (business owners) for each card transaction. The plus is called a basis point, for instance, 50 basis points = 0.005 or 0.5%. (i.e. with a $1,000 card transaction, the processor will charge a $5 fee).

What is padding for interchange plus merchant service processing rates? When looking at your credit card processing statement, you will see the pure cost rate (which is the interchange rate) listed for each interchange pure cost from the card issuing brands. The plus on interchange is the fee (.35% on top of the pure card interchange cost) added by the processor for their service.

Often times, the processor pad the interchange pure cost rate which is not the true cost of the rate specified by the card issuer. The rate is padded (increased), making the merchant believe it is the pure cost when it is not. 

i.e. 1.89% interchange rate charged when the actual interchange rate should be 1.69%, so this rate was padded by .20% which is 20 basis points.