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Spotting Padded Interchange in Your Merchant Statements

Spotting Padded Interchange in Your Merchant Statements
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Unfortunately, many Merchant Account Providers practice unethical billing and lie about the fees they charge you. Billing statements are intentionally complex to keep customers from finding hidden fees.

This series of posts will cover different ways providers practice unethical billing. To kick things off, we’re going to cover padded Interchange and how to avoid it. But first, a little refresher on Interchange (IC).

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Interchange: A Quick Review

In the simplest terms, IC is the wholesale cost to run a transaction. It is determined by card brands (Visa, MasterCard, Discover, Amex) and paid by Merchant Account Providers, but the cost is passed onto their customers (that’s you).

IC typically depends on the card type and method of transaction (swiped or keyed), and varies depending on the level of risk or reward. For example, a swiped credit card would have a lower IC cost than a keyed credit card because there’s less risk of fraud when swiping. The same goes for rewards cards: An airline miles card would have a higher IC cost than a regular credit card. As risk or reward goes up, so does the IC cost.

Interchange-plus-rate-1 (2)

Card brands modify IC twice a year in April and October. All Merchant Account Providers are charged the same IC rates. It’s even across the board so no provider has an advantage over another, regardless of size (find out more about all types of merchant account fees in chapter 3 of our ebook). Card brands' IC rates are posted online for all providers and businesses to view.

  • Visa IC fees are publicly posted and determined by card type and transaction method.
  • MasterCard IC fees are publicly posted and determined by card type and transaction method.
  • Discover IC fees are also determined by card type and transaction method, but are not available to the public.
  • Amex IC fees are publicly posted but determined by business industry type, then broken into tiers.

In exchange for providing the product you use to accept payments and customer support, providers add a markup on each transaction. This is called Interchange-plus pricing. It’s intended to be the most transparent pricing model, but if you’re in the hands of the wrong provider, you may fall victim to deceptive billing practices.

So What's Padded Interchange?

Padded IC means your provider is hiding an additional markup in the IC cost. Yes, that means your provider is blatantly lying to you. With Interchange-plus pricing, your bill should reflect the costs published by the card brands. Unethical providers know most customers won’t go searching for these published rates, so they add a hidden markup to make an extra buck. Here’s an example:


  • True IC cost for Visa Rewards 1 is 1.65% + $0.10, but is listed as 1.80% + $0.10 on the statement
  • This provider hid a markup of 0.15% in the discount rate

Providers display IC in various ways, so your statement may look different from this. (I told you statements were complex!) This is just one example of how providers can hide fees they claim to not charge. Padded IC is an unethical billing practice that breaks trust for all providers.

How to Avoid Padded Interchange

As we’ve mentioned, determining if you’re a victim of padded IC can be a difficult task. We recommend working with a truly transparent provider if you’re looking to start accepting credit cards. If you currently accept credit cards, and are wondering whether your provider is giving you the runaround, you can cross-check current IC costs with your merchant statements, or use our nifty Merchant Service Provider assessment checklist. If you’re not up to that challenge, get a statement analysis by a professional to weed out any shady billing. Don’t let providers take advantage of you!

Find out if you're a victim of padded Interchange.

Have you had an issue with unethical billing from your provider? Ever get charged padded Interchange? Tell us about your experience below.

Editor's Note: This post was originally published in November 2017 and has been updated for comprehensiveness and accuracy.

About Author
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Ursula Librizzi

Ursula is the sales and marketing operations manager for PayJunction. She oversees daily marketing tasks and liaises between the sales and marketing departments.

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