Interchange is a percentage fee which the merchant's bank (acquirer) has to pay to the cardholder's issuing bank whenever they use their credit/debit card. This fee is paid for the benefits of accepting payments and covers handling costs including the risk involved in processing/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 three component format. Firstly, the basis is the interchange percentage fee, on top of which a card scheme fee is added and lastly a constant margin is added. Sum of these three fees is the a final rate that the merchant is being charged with. The benefit of such pricing model over the fixed rate (or blended rate) model is full transparency and thus lower fees overall.
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 2.00%.
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 raging 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.