interchange fees

What is interchange plus pricing with particular reference to Canada

Do you know interchange plus pricing and how it is different from other pricing models? It is a fact that credit card processors use the interchange plus pricing model. These processors determine the pre-transaction costs that a merchant pays. Two significant components make Interchange plus pricing model. One is the interchange fees charged by card brand and issuer bank, and the other is markup set by the credit card processor. Interchange plus has some advantages over the different pricing models. It is termed as a fair, trusted, and balance pricing plan that the payment processing industry uses. Some companies call it simplified or transparent pricing as well. It is because of its transparency that it is gaining overwhelming growth as compared to other pricing plans.

 

Interchange pricing is depends on multiple factors

1-Card brands (Visa/Mastercard/AmEx etc.)

2-Type of card you will receive in your business

3-Type of transaction: card present/not present

4-Industry that you doing business.

5-Your average transaction size

Roughly speaking If you are an online business, it may cost you around 2.2% to 2.5% on average for in store or card present transactions your cost could be something between 1.9% to 2.5%.

 

What does interchange plus mean?

Different factors play a role in determining interchange plus pricing. If a business

subscribes to a processing plan and goes for an interchange plus pricing plan, he will come up to different pricing depending on the type of credit that his clients use for payments. The reason behind this varied pricing is that the first portion of the pricing is the interchange fees. Every card offers different interchange fees. If you swipe a Visa card, it will come with the interchange fees round 0.8% + $0.15. If you use a MasterCard card, it will charge the interchange fees 2.3% + $0.10 per transaction. It is more than visa card fees. If a cad is a premium, it will cost you more. There are different interchange fees for each credit card.

 

Interchange Fees in Canada

2015 was a milestone in the interchange fees history of Canada. The two major credit card companies agree to freeze the interchanges fees at the rate of 1.5% across all of their credit and debit cards for five years. In return, they were given some regulatory benefits from the Canadian federal government. Before this agreement, interchange fees for both cards were higher. According to estimates, it will save $400 million of Canadian merchants annually.

Though it is a significant reduction, still the Canadian merchants pay billions annually for interchange fees. These costs surely pass on to Canadian consumers in the form of added retail prices. It inevitably affects the lower and middle classes.

 

Overview of Canada interchange plus system

There is a long term trend of cards substituting the cash that is continuing for the last few years. There Canadian consumers increasingly use a credit card for payments. It is because non-cash retail payment methods are getting an impetus. The use of credit cards for payments surely has a positive effect on the growth of e-commerce. Now the Canadian youth and middle-class consumers tend to shop online. I this way, card payment get more shares of cash because more and more merchants are accepting the money less payments. The innovations in science and technology have made the credit card payment system even more accessible.

It is a fair method to pay for products and services. Though the credit card spending in the US outweighs the debit card spending in Canada, the competition is going on. The lack of general reward schemes may perhaps not making the debit cards even more popular. But still, these cards are becoming more common. It is a fact that credit cards with rewards have widespread usage.

 

Card networks

Visa and MasterCard dominate the credit card market in Canada. The visa has a 57% market share, while MasterCard comes with a 30% market share. The Interac dominates the debit card market, they sometimes co-branded with either visa or MasterCard. The Interac has lower average transaction value as compared to visa and MasterCard.Cost or processing debit is significantly lower than credit card and the interchange fee for debit in Canada is start from $0.02 to $0.04 and for contact less is $0.03 on top.

 

Code of conduct regulations in Canada

The Canadian interchange fees and payment system has a history. In 2010 a code of conduct was implemented for the credit and debit card industry in Canada. In 2015 it was restructured to include many and mobile payment systems in Canada.

Here is an overview and short description of this code of conduct:

  • The code emphasizes and advocates transparence.
  • Fair co badging is the base f payment industry
  • The protection of consumers is the foremost duty of credit card companies.
  • Merchants are not required to accept both credit card and debit card payments from the same network.
  • You can use interact for all kinds of debit card transactions

The government introduced this code for voluntary adaption by payment processing companies. It also made clear that the government has the authority and may modify rules when required so.

In recent years the Canadian merchants and business owners were facing high credit card fees; the economy has high credit spending behavior. It had to be content with zero interchange fees on a lesser used Interac debit card. Now there are fees for contactless debit, and the contactless payments are becoming more popular in Canada. Most of the merchants consider that they have been given a worse deal with the threat of more fees increase. There may be new fees in Canada. There are appeals that the government should not stand for interact zero interchange fees and do more for merchants. The merchants say they are undergoing exploitations.

Code of conduct made by government of Canada to protect merchants right in payment card processing industry.

 

Bottom line

It is a fact that interchanges plus pricing is inexpensive and cheaper to accept if we compare it with fixed pricing and other fees systems. If the company has customers who increasingly use debit card payments, it is the best option to choose interchange plus pricing.

There are minimum fees for interchange and assessment (Card brand) on debit card payment transactions. If you opt or fixed pricing is will charge more. Moreover, you can estimate your transaction costs each month through a simple calculation. It is a fact that interchanges plus comes with more advantages for Canadian merchants and consumers.

After working in multi-level corporations including some in the merchant processing industry, I realized that there were some shortcomings in the conventional payment solutions. Furthermore, I always wanted to do something big and make an impact through solutions that help small business owners. This led me to start International Payment Solutions, to not only provide payment solutions to the business owners but also other services that allow them to grow and expand further.