Understanding the Interchange Cost-Plus Model for Credit Card Processing

Overview

This article provides additional details and an understanding of the interchange cost-plus (IC+) credit card processing model used on the foreUP Payments platform. 

Interchange Cost-Plus

There are two payment/credit card processing models: flat rate and interchange cost-plus. In regards to foreUP Payments, we use the interchange cost-plus (IC+) model. Think of IC+ as wholesale credit card processing.

The IC+ model is where merchants (your business) pay the exact interchange fees as set by the card networks, like VISA, M/C, DCVR, AMEX, etc. (the "IC" part), plus a fixed markup added by foreUP (the "+" portion), that allows us to support the product and platform.

Here are a few key points to keep in mind with IC+: 

• The IC+ model is considered the most transparent, as it allows the merchant to see the exact processing cost of each transaction
• The merchant can easily compare interchange costs between card networks to help drive business/operational decisions
• IC+ is the most cost-effective form of processing
• Passing the interchange fees directly to the merchant with a fixed markup eliminates hidden costs
• Interchange fees are set by the card networks based on a few factors, which are highlighted in the "Calculating Interchange Rates" section below

Calculating Interchange Rates

Calculating the interchange rates for an individual transaction will include several factors: 

1. Card Brand: Each card brand (VISA, M/C, DCVR, AMEX) controls its interchange pricing and generally updates it biannually, usually in April and October. You can find a specific card brand's interchange pricing through an internet search. 
2. Card Type: Credit cards generally have higher interchange rates than debit cards
3. Transaction Method: Card-present transactions (the card is swiped, inserted, or tapped at a physical terminal) typically have lower interchange rates than card-not-present transactions
4. Merchant Category Code (MCC): Different industries have different MCCs, impacting the interchange rate based on perceived risk. At foreUP, we use the following MCC codes depending on the business type of our merchants: 
   1. 5812: Eating Places and Restaurants
   2. 7992: Golf Courses - Public
   3. 7997: Membership Clubs
   4. 9399: Government Services
5. Transaction Amount: While the rate itself is usually a percentage, larger transactions may result in a higher absolute fee

Due to the above factors, calculating a merchant's future interchange fees is nearly impossible. A merchant's best option to try and calculate future interchange fees is to look back at prior year data.

FAQ

Q: Why doesn't foreUP use a flat-rate model for payment processing? Why IC+? 

A: foreUP highly values transparency with our clients. The IC+ model allows us to deliver on that value.

Q: I am using foreUP Payments as my payment processor. Where can I find the interchange costs for an individual transaction? 

A: You must log into the Finix dashboard (the dashboard that powers foreUP Payments) and navigate to the Payments section. Please look at the following article for more information: How to View and Understand Payments in Finix.