why interchange plus is the fairest pricing structure for a credit card merchant account

8/8/2019 Why Interchange Plus is the Fairest Pricing Structure For a Credit Card Merchant Account

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Why Interchange Plus Is The Fairest Pricing Structure For A Credit Card Processing Account

Interchange Plus pricing used to be a closely guarded trade secret, reserved forhigh volume merchants only. The reason? Because the mark-up is so transparent amerchant can easily see what they are being charged for each card processed, le

aving the processor open to competition. This article exposes closely guarded se

crets in order to level the playing field for merchants of all types and sizes.The information age has arrived and the genie cannot be put back in the bottle -which is much to your advantage, as you will see...

Leveling The Playing Field

When you think Interchange, think wholesale. All rates and fees which a merchantpays to process credit cards are based on VISA and Mastercard Interchange Chart

s. So whatever you're paying to process credit cards reflects the mark-up to Interchange your acquirer has set.

The beauty of Interchange Plus pricing is that it truly levels the playing field

. Whether your name is WalMart or Jennifer's Pet Grooming, with true InterchangePlus (IP) you pay a flat mark-up on the true wholesale costs.

All banks and Merchant Services Providers (MSP's) pay the same rates - with NO exceptions. What varies is the pricing structure your acquirer (the company you signed a contract with to accept credit cards) uses for your account AND their mark up over Interchange.

About Interchange

On the Interchange Charts, which are published on both VISA & MC's websites andcan be downloaded as pdf' files, there are different rates depending on:

* the type of card - there are more than 100* the type of business (industry)* how the card is presented (swiped vs. non-swiped)* information entered at time of purchase, and,* when it's all batched out

Based on the variables listed above, here are the interchange rates and fees that will show up on your merchant statement, and what they are for:

* the discount rate, which is a percentage of sales volume fee, and dependson the type of card presented

* the per item fee - this fee will appear on your merchant statement as eith

er a discount per item fee (DPI), or, a transaction fee* dues & assessments - this money goes directly to VISA and MC, the others to the cardholders card issuing bank, and finally

* issuer access and settlement fees (IAS)

Next, we will consider the ways these fees are charged, depending on how your acquirer set up your account.

About Pricing Structures

The most typical pricing structures for a merchant account are: 3-tier; 4-tier;and Interchange Plus.

With tier pricing (the most common) the acquirer reduces the hundreds of different discount rates on the Interchange Charts down to just 3 or 4 rates


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With 3-tier pricing they are:

* the qualified rate* the mid-qualified, and,* the non-qualified

All 4-tier pricing does is separate swiped debit cards from credit cards and cha

rge a lower rate (i.e., the 4th tier), since credit is not being extended on debit cards and therefore is a lower risk to the card issuing bank.

The Problems With 3 & 4 Tier Pricing

There are so many problems with tier pricing vs. interchange plus. Think about it. First, they've taken several hundred discount and dpi rates and distilled them down to just 3 or 4. In order to do this they've had to arbitrarily create 3 or 4 price ranges (qualified, mid, and non) to divide the 100+ different cards (each card having it's own separate rate) into.

So here's the first problem:

* Who decides which cards go into which tier? and,* Who decides what rate to use for each tier?

Your acquirer decides, that's who. Most merchants who have long term experienceaccepting credit cards can easily identify what tier pricing has created. It's created a maze of confusion over what they are being charged, and why. And it's given less than trustworthy processors the opportunity to hide the true charges of the cards they take from the merchant.

The second problem is this:

You know the rate for each category they create will be the same for each of the

cards in that category. Correct? Well, which cards rate will they use to determine the price to set for that category? The highest, of course. How fair is that? You're always paying the highest available rate for each card in a tier.

A third problem:

Let's say that of the 100+ different types of cards, there are 30 different cards in either one of the 3 tiers. Every April and every October VISA and MC meet to have an association meeting. If any rates are going to be increased, this is almost always when the decisions are made.

Suppose that out of the 30 cards in one of the tiers, the association raises therates on 3 of them. The problems are:

* what's to prevent your processor from increasing the whole category? Meaning, instead of "eating" the increase, or being able to pass on an increase thateffected just 3 cards, many processors will mark up the whole category, and someeven tack on an extra profit on top of the associations increase.

* since individual cards are "hidden" within a tier there is no accountability,

* as hard as it is to believe, sometimes rates are actually lowered on a card, but since it's part of a group in a tier the merchant will realize no savings, and,

* if you're in a 3-tier structure that means you are overpaying for debit cards because the lower interchange rates on debit cards aren't being applied when

a customer selects "debit" rather than "credit" when making a purchase and being prompted to choose whether to process it as a debit or credit


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Why Interchange Plus Is The Fairest

What I like about an Interchange Plus structure is it's transparency. What IP does is take the true rate from the interchange chart - and add a flat mark up toit, expressed as basis points. What could be simpler than that?

Plus, a merchants statement becomes understandable, because an IP statement will

list each card that was taken and then show the interchange rate charged (accountability because you can check the charts), and then show it's mark-up. Isn't that transparent?

Not only that, but whenever there's a rate increase on individual cards, it doesn't get applied to a whole group.

These are just a few of the reasons I contend that IP pricing is the most fair pricing structure for a merchant account!

why interchange plus is the fairest pricing structure for a credit card merchant account

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