Every business needs a payment processor, but how much do most people really understand about what they are being charged? Getting a good deal from your payment provider is one way to reduce your costs and deliver more profit to your business. In this post we will help you to understand the different pricing models and the benefits of Interchange Plus Plus pricing versus the more common Blended pricing model. Let’s dig in and see how they work.
First, it is important to understand exactly what fees you are being charged and by who.
1. Interchange fees
Interchange fees are fees paid to the cardholder’s bank or card issuer when they initiate an electronic payment. Interchange fees are capped, but vary depending on card type. Generally, premium cards have higher interchange fees. You can view the interchange fees here.
2. Scheme fees
Scheme fees are paid to the credit card associations, Visa or Mastercard. These fees also vary from card to card as well.
3. Merchant Service Fees (MSF)
Merchant Service Fees go to the payment processing company. This could be a bank or a payment company like Tyro, Square or ArtsPay. Whilst Merchant Service Fees are the same (percentage wise) for every transaction, because Interchange and Scheme fees vary, there are some transactions that carry higher costs than others.
Understanding Pricing: Blended v Interchange Plus Plus
Commonly, there are two different pricing structures for these fees. Each one has some pros and some cons. It is important to understand them both so you can ensure you are getting the best deal for your business.
Blended Pricing
With blended pricing, your payment provider charges one flat rate for your Visa and Mastercard transactions that incorporate the Interchange Fees, the Scheme Fees and the Merchant Service Fees. This pricing model is very easy to understand because you know exactly what you will be charged for each transaction and this gives you forward visibility on your costs.
Despite its simplicity, there are some disadvantages. Generally, blended pricing is higher than Interchange Plus Plus because it must cover the payment provider’s costs for expensive card types. This means providers tend to round up, to ensure they don’t lose money if your customers use lots of premium cards. Generally, a blended price would be somewhere between 1% and 1.7%.
Interchange Plus Plus pricing
Interchange Plus Plus pricing is a bit more complex, but has some good benefits once you understand how it works. Under this pricing structure, instead of charging one rate to cover all three different fees, your payment provider charges a set, low Merchant Service Fee (MSF) and then passes on the Interchange and Scheme fees transparently without a markup. This means that for each transaction, you will be charged a different rate depending on the card type being used. However, it also means that you are getting as close to cost as possible. Interchange Plus Plus rates will be lower than blended prices because they don’t include the Scheme or Interchange Fees.
Which Structure is Better for Your Business?
Each business is different, so choosing the best structure will depend on your type of business and your customers. Whilst blended pricing can be simpler, Interchange Plus Plus has the advantage of reducing costs for your business.
To give you an example of the difference, below is an example of a single $100 transaction with a standard Visa credit card, calculated under both a 0.3% Interchange rate, and a $1.4% Blended rate.
- Interchange Plus Plus pricing - 0.3% ex GST (estimates only)
- Merchant Service Fee = 30 cents
- Interchange Fee = 60 cents
- Scheme Fee = 19 cents
- Total = $1.09
- Blended Pricing (1.4% ex GST)
- 1.4% x $100 = $1.40
As you can see, in this case the transaction is cheaper under the Interchange Plus Plus pricing structure. At ArtsPay, we believe that Interchange Plus Plus is the fairest structure and helps you reduce your overall costs.
If you would like more information or for a full pricing review and cost analysis, get in touch. We are here to help, email hello@artspay.com