Interchange Plus Pricing
Jackrabbit applies an Interchange++ pricing model in order to calculate the costs for Credit Card transactions.
The cost price of credit cards is called the Interchange fee. The Interchange is a fee that bank card networks such as Visa and MasterCard require merchants to pay to card-issuing banks when merchants accept their credit and debit cards for purchases. The card-issuing bank in a payment transaction deducts the interchange fee from the amount it pays to the acquiring bank that handles a credit or debit card transaction for a merchant. The applicable Interchange is variable and is dependent on transaction variables like card type, geographical region, sales channel and security protocol applied.
Because of this pricing model, the Credit Card costs will not only be fully transparent for the Merchant as the exact cost price per transaction is reported but this pricing model, moreover, will almost always give the Merchant the lowest total costs for handling incoming Credit Card payment traffic.
Applying the Interchange+ pricing results in Merchants paying a fixed margin (Acquiring markup) on the actual cost price of the Credit Card transaction.
The Interchange+ pricing model is therefore different from the traditional way of paying a fixed blended rate for Credit Card payment traffic.
With a blended rate Merchants usually pay a bigger margin as the blend will have to generate a margin even on those transactions with the highest cost price, a so-called “Insurance Premium”. As a result, Merchants often pay too much for those transactions with a lower cost price when a blended rate is applied.
For merchants requiring a fixed Merchant Service Charge (MSC), Jackrabbit also offers blended pricing instead of Interchange+ pricing. Switching between blended pricing and Interchange+ pricing is allowed under certain conditions.
In case you want to switch from blended pricing to Interchange+ pricing, or the other way around, please contact Jackrabbit Sales Support.
The cost price of credit cards is called the Interchange fee. The Interchange is a fee that bank card networks such as Visa and MasterCard require merchants to pay to card-issuing banks when merchants accept their credit and debit cards for purchases. The card-issuing bank in a payment transaction deducts the interchange fee from the amount it pays to the acquiring bank that handles a credit or debit card transaction for a merchant. The applicable Interchange is variable and is dependent on transaction variables like card type, geographical region, sales channel and security protocol applied.
Because of this pricing model, the Credit Card costs will not only be fully transparent for the Merchant as the exact cost price per transaction is reported but this pricing model, moreover, will almost always give the Merchant the lowest total costs for handling incoming Credit Card payment traffic.
Applying the Interchange+ pricing results in Merchants paying a fixed margin (Acquiring markup) on the actual cost price of the Credit Card transaction.
The Interchange+ pricing model is therefore different from the traditional way of paying a fixed blended rate for Credit Card payment traffic.
With a blended rate Merchants usually pay a bigger margin as the blend will have to generate a margin even on those transactions with the highest cost price, a so-called “Insurance Premium”. As a result, Merchants often pay too much for those transactions with a lower cost price when a blended rate is applied.
For merchants requiring a fixed Merchant Service Charge (MSC), Jackrabbit also offers blended pricing instead of Interchange+ pricing. Switching between blended pricing and Interchange+ pricing is allowed under certain conditions.
In case you want to switch from blended pricing to Interchange+ pricing, or the other way around, please contact Jackrabbit Sales Support.
Interchange Pricing
Interchange fees account for the majority of credit card processing expense, and as we explain in our processing guide, a familiarity with interchange is vital knowledge for any business owner or manager. You'll find a link to the current interchange fees in each merchant account quote that you receive here at Jackrabbit, and also in the text below. Interchange is the money transferred from the acquiring bank to the issuing bank for each bankcard transaction. Interchange fees account for the majority of credit card processing costs and are established by the card brands (Visa, MasterCard, Discover) of open-loop processing systems.
Historically, interchange has been imposed upon merchants to reimburse issuing banks for lost interest resulting from a cardholder's grace period for repaying their debt. This is why Visa still refers to interchange fees as "interchange reimbursement fees." Today, Visa states that "the primary role of interchange is to create an equitable balance of incentives between a cardholder's financial institution — which issues Visa cards to consumers — and a retailer's financial institution that enrolls retailers and processes Visa transactions for them." (Source)
When a credit card transaction takes place the issuing bank (cardholder's bank) pays the acquiring bank (merchant bank) for their cardholder's purchase less the interchange fee for the transaction. The acquiring bank then pays their merchant from the remaining balance minus a markup for processing the transaction.
Merchants ultimately receive the gross amount of the sale minus a series of base costs and markups that include interchange, dues, assessments and the provider's markup. These fees are described in more detail in our article about credit card processing fees.
Interchange fees for the two largest card brands may change twice annually in April and October. The interchange fee schedules for Visa and MasterCard can be found here:
Interchange Qualification
The portion of a transaction that's taken by an issuing bank for interchange depends on the interchange category that the transaction falls under as dictated by the card brand (Visa, MasterCard). The process of categorizing a transaction is called interchange qualification, and it happens on a per-transaction basis.
A number of factors are used to determine where a transaction qualifies at interchange. Some of these factors can be controlled or influenced by the merchant while others can't. Factors that merchants can influence include:
Interchange fees account for the majority of a business's credit card processing expense, making it very important to ensure that the majority of transactions qualify to the lowest possible categories as often as possible. The process of adapting a business's processing behavior to achieve the lowest possible interchange costs is called interchange optimization.
The extent to which interchange can be optimized for your business depends on several variables and is a question that you should address with your merchant service provider or your Jackrabbit representative.
Historically, interchange has been imposed upon merchants to reimburse issuing banks for lost interest resulting from a cardholder's grace period for repaying their debt. This is why Visa still refers to interchange fees as "interchange reimbursement fees." Today, Visa states that "the primary role of interchange is to create an equitable balance of incentives between a cardholder's financial institution — which issues Visa cards to consumers — and a retailer's financial institution that enrolls retailers and processes Visa transactions for them." (Source)
When a credit card transaction takes place the issuing bank (cardholder's bank) pays the acquiring bank (merchant bank) for their cardholder's purchase less the interchange fee for the transaction. The acquiring bank then pays their merchant from the remaining balance minus a markup for processing the transaction.
Merchants ultimately receive the gross amount of the sale minus a series of base costs and markups that include interchange, dues, assessments and the provider's markup. These fees are described in more detail in our article about credit card processing fees.
Interchange fees for the two largest card brands may change twice annually in April and October. The interchange fee schedules for Visa and MasterCard can be found here:
Interchange Qualification
The portion of a transaction that's taken by an issuing bank for interchange depends on the interchange category that the transaction falls under as dictated by the card brand (Visa, MasterCard). The process of categorizing a transaction is called interchange qualification, and it happens on a per-transaction basis.
A number of factors are used to determine where a transaction qualifies at interchange. Some of these factors can be controlled or influenced by the merchant while others can't. Factors that merchants can influence include:
- Processing method
Card-present and card-not-present are the terms used to generally refer to the different ways of processing a credit card transaction. Card-present interchange categories carry smaller fees than card-not-present categories.- Card-Present
Card-present transactions are those where a merchant is able to read a customer's credit card data electronically. This process is referred to as electronic data capture. - Card-Not-Present
In the case of a card-not-present transaction the cardholder's information is entered manually by the merchant or provided by the cardholder through a gateway or portal.
- Card-Present
- Transaction data
The information supplied with a credit card transaction impacts how it qualifies at interchange. Proper and complete transaction data is especially important for merchants that process card-not-present transactions and for those that deal with corporate and government enhanced data. - Merchant Category Code
Specific interchange categories exist for businesses that fall under a certain merchant category code (MCC) designations.
- Card Type: Separate interchange categories exist for credit and debit card charges.
- Card Brand: The brand of a bankcard will impact interchange qualification. This criterion is typically associated with credit cards that yield some type of reward for the cardholder.
- Card Owner: Whether a credit or debit card is issued to an individual, business, corporation or municipal agency impacts interchange qualification.
Interchange fees account for the majority of a business's credit card processing expense, making it very important to ensure that the majority of transactions qualify to the lowest possible categories as often as possible. The process of adapting a business's processing behavior to achieve the lowest possible interchange costs is called interchange optimization.
The extent to which interchange can be optimized for your business depends on several variables and is a question that you should address with your merchant service provider or your Jackrabbit representative.