Interchange-plus may be the best option for your business. Industry experts recommend interchange-plus pricing because it’s more transparent than the other pricing models: it reveals exactly how much of a markup you’re paying the service provider.
Interchange fees are set by the card associations – or card networks – that pay the banks involved in the transaction for moving money from your customer’s credit card account to your company’s bank account. There are hundreds of interchange rates, depending on the type of card and the brand. The card networks charge a small fee for each transaction. These rates are the same for every processor – regardless of whether they’re a payment facilitator, ISO or MSP, or direct processor – and they’re nonnegotiable. The only debatable part of a transaction rate is the processor’s markup.
With this model, the processor passes on to you the interchange rates and card association fees charged by the credit card networks – Visa, Mastercard, Discover and American Express – and adds a markup percentage and per-transaction fee.
When you receive a quote for this pricing model, it’s only the processor’s markup percentage and per-transaction fee that you’ll be charged. So, for each transaction, you’ll pay this amount on top of the interchange rate.
Here’s an example of interchange-plus pricing, using Helcim’s transaction fees. When you accept a credit card payment in person using an EMV chip card reader or a swiper, these are the rates you’ll pay:
Processor’s markup: 0.25% plus 8 cents. This is the rate you’re quoted when you ask for interchange-plus pricing. This is the only negotiable portion of this rate.
Interchange rate: 1.65% plus 10 cents. This is an example of what it might cost to process a retail transaction using a Visa Rewards credit card.
Card association fee: 0.15% plus 2 cents. This is the fee that Visa charges for credit card transactions.
Consequently, for this transaction example, the full rate would be 2.05% plus 20 cents.
Did you know? The best processors offer interchange-plus pricing to all their customers and post their rates online. But most of the time, you have to specifically ask for it, and you may need to jump through hoops to qualify for it – such as processing a certain volume of sales each month or working with the company over an extended period.
Tiered pricing can be a good option if your customers typically pay in person using regular debit cards, though it can be expensive if they prefer to use premium rewards, corporate or international credit cards. Most processors prefer this pricing model, but industry experts advise against it, as it’s less transparent than others.
There’s no way to know exactly what the processor’s markup is, as each processor sets its own tiers and decides which interchange rates fall into each tier.
Most processors don’t post tiered rates in full online. Instead, they advertise teaser rates that apply only to regular debit cards accepted in person. Many sales reps don’t disclose how many tiers, the pricing for each tier, or what types of cards and transactions are included in each tier unless you specifically ask for this information – leaving you with a surprise when you get your first bill.
Transactions can be downgraded for various reasons, resulting in higher rates than those you were quoted. When you call for a quote, ask which actions can cause a transaction to be downgraded.