What are interchange fees?

There's no way around this fee and you'll want to know about it before you start accepting payments.

Interchange fees are variable charges for processing transactions, first paid by the payment processor to the cardholder’s issuing bank and card company (Mastercard or Visa), and later charged back to the merchant by the payment processor. The variable nature of interchange fees depends upon the card type, information contained in the transaction, when it was processed, and how it was processed (swiped or manually keyed in). The interchange fee is different for every credit card transaction because of the many factors involved.

Since processors have to pay the credit card interchange fees and still charge for their services, they’ve come up with numerous ways to pass those costs onto you. Processing rate plans generally follow one of two approaches in how they treat interchange fees. Cost-plus pricing separates the interchange and the markup. With one of these plans, you’ll always know exactly how much of a cut your processor is taking from a transaction, even if you don’t know the interchange rate in advance. Payway uses cost-plus pricing so you never pay more than you should.

On the other hand, bundled or flat-rate pricing combines the interchange and the processor’s markup into a single charge. This pricing is not transparent and you'll have no idea how much of your processing fee is going to the issuing bank and how much to your processor.

While bundled rate pricing may make your processing costs more predictable, you’ll often end up paying more overall for processing with this approach. Payment providers  such as Square and PayPal, use bundled-rate pricing. This kind of pricing plan will charge the same rate for both debit and credit cards. Under bundled-rate pricing, you’ll be paying far more to process debit card transactions than you would under a cost-plus pricing plan.