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Interchange Plus Pricing and your Merchant Services

Updated on February 1, 2012

Save Buckets of Money with Interchange Pricing

The first question any merchant services provider gets asked when introduced to a business owner is “What are your credit card processing rates?” and most sales agents will answer with “Well that depends let me look at your statements.” There can be nothing more frustrating than this to a business owner. In most cases the reason that the agent said this is because they are using what is call tiered pricing and need to figure out the most profitable way to set up your business. Now, it is true that the only way to calculate the relative savings for an individual business is too do a statement analysis and that most merchants would not be able to understand what savings to expect without one.

As a proponent of transparency and always working in the best interest of the business owner the Merchant Doctor will only use what is called Interchange Plus pricing for our clients. This way when we answer the same question of “What are your credit card processing rates?the answer is “simple Interchange Plus 15 basis points and .10 per transaction.” However, this usually results in the deer in the headlights look and followed by “Well how much does that cost – what are your rates?” So in this article I want to look at 3 simple areas so that you can understand Interchange Plus pricing and why your business deserves it:

- What Interchange Plus pricing is

- Why it’s the most transparent pricing model for your business

- Why Interchange Plus Pricing is best for you AND your Merchant Services provider.

What is Interchange Plus pricing and How does it save you money?
What is Interchange Plus pricing and How does it save you money?

What is Interchange Plus Pricing?

To make Interchange plus credit card processing as simple as possible we first have to define where Interchange comes from. Interchange cost is the raw cost associated with any particular card type as assigned by the card associations (Visa/MasterCard etc…) and/or the bank that issued the credit card itself. This means that there are actually over 350 rate categories within Interchange! Don’t, however, confuse yourself on that fact because shortly you will understand why Interchange Plus pricing is in the best interest of the business owner. Now the Interchange rate is not the only cost associated with Interchange Plus pricing. This is because the Interchange Rate is paid to the card issuing bank. So Visa/MasterCard/Discover add what are called “Dues and Assessments” to Interchange for access to their network. Interchange with Dues and Assessments make up about 90% or more of the cost that a merchant pays for their credit card processing service.

When a business is set up with Interchange Plus Pricing they are charged the exact Interchange Rate with Dues and Assessments PLUS a small fixed fee for their credit card processing services. This fixed fee is expressed in Basis Points, for instance, a typical Interchange rate quote may sound like:

“Interchange Plus 25 Basis Points and $0.15/transaction”

A basis point is 1/100th of 1% so 25 basis points equals .25%.

In other words this would be like walking into a store that carries thousands of items and being able to see that store’s exact cost and know that you will pay a fixed mark up on each item.

Don't let tiered pricing put your business underwater.  Interchange Plus is best for your merchant services.
Don't let tiered pricing put your business underwater. Interchange Plus is best for your merchant services.

Why Interchange Plus pricing is the most transparent for your merchant services.

The other most common billing method for credit card services is called Tiered pricing. In this pricing method the merchant services provider clumps the over 350 rate categories into different “tiers” like “Qualified, Mid Qualified, and Non Qualified” transactions. The merchant is then charged one of the 3 rates for every transaction. Albeit superficially easier to grasp, tiered pricing has a huge downside and that is that there is no or very little regulation on what card types fall into each category. This means that merchant service providers can manipulate their categories to gain a bigger profit and hide fees. This also means that when a business owner compares quotes from more than one merchant services provider it is impossible to say whether one quote is better than another.

For instance if you are looking at 2 quotes and they both appear to be exactly the same:

“Qualified 1.49%, Mid Qualified 1.89%, and Non Qualified 2.39% and .25/transaction”

Next let’s assume that a transaction is completed with a card that carries an Interchange rate of 1.20% and .03/transaction. One processor may place that card in their “Qualified” rate category which will cost the business 1.49% while the other may place it in the “Mid Qualified” category costing 1.89%. Even if you were able to confirm that all card types were placed in the exact same category there is no guarantee that the credit card processor won’t change the way they sort their card types.

Now let’s assume that you demanded your quotes in an Interchange Plus format without disclosing the rates from one processor to another. You might end up with one quote:

“Interchange Plus 20 Basis Points and .08/transaction” and a second quote of “Interchange Plus 50 Basis Points and .15/transaction”

Since Interchange cost is the same for all credit card processors both interchange plus pricing credit card processing and tiered pricing are based on the same fixed cost. This means that Interchange with Dues and Assessments is a cost that is NOT negotiable. Therefore Interchange Plus pricing allows you to know exactly what you are paying for your credit card processing and leaves no room for hidden costs or fees. The credit card processor makes the exact same margin on every transaction and the business owner never has to pay too much for any particular card type.

Why Interchange Plus pricing is a win - win for your business.
Why Interchange Plus pricing is a win - win for your business.

Why Interchange Plus Pricing is best for you and your credit card processor.

Interchange plus pricing actually benefits both the business owner and the merchant account provider.

The merchant gets to appreciate knowing that they have been able to manage the only variable in their rate structure by utilizing Interchange Plus pricing. This means that they will be able to realize the lower cost of interchange plus credit card processing as well transparency in their service versus any other pricing model. Interchange plus will also enable the merchant to work with their processor to ensure that their card acceptance methods are as efficient as possible.

Credit card processors benefit from Interchange plus merchant pricing by no longer having to re-price merchants to keep up with changes in the Visa, MasterCard, and Discover interchange rates or dues and assessments. This will reduce merchant confusion and irritation resulting in happier clients and less attrition. Merchant Services providers offering their merchants Interchange Plus pricing can focus on the merchant’s needs and interests rather than constantly monitoring accounts to ensure profitability.

Your business deserves Interchange Plus pricing and the Merchant Doctor is proud to offer the same great Interchange Plus rates to all of its clients regardless of sales volume. For more information or to get started with the Merchant Doctor difference visit us. As always your questions, comments, or concerns are greatly appreciated and remember to join the Merchant Doctor on FaceBook, Google+, Twitter, or LinkedIn.


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