Merchants seeking an online payment solution should consider identifying a provider who can offer them merchant account rates that are based on the interchange-cost-plus pricing model. This model most often offers the lowest rates available for small to mid-tier merchants and provides transparency because interchange-plus pricing is when a fixed markup is applied directly to the interchange fees currently published by Visa, MasterCard and Discover. The merchant is then able to see the exact cost of each and every transaction and can identify amounts being paid to the provider.
By breaking down the components of processing, Interchange-plus allows for better pricing optimization and often leads to lower costs for the merchant when compared with other forms of pricing such as tiered or bundled.
So, how does it work? Well, the interchange-plus pricing model is based on three components.
1. Interchange – This is the money transferred from the acquiring bank to the issuing bank for each bankcard transaction that is made. Interchange fees account for the majority of credit card processing costs and are established by the major card brands (Visa, MasterCard, Discover). These rates can change several times a year but are always published on both the VISA and MasterCard websites. In the Interchange-plus pricing model, this is passed through to the merchant at cost.
2. Assessments – This is the percentage of the transaction that goes directly to the relevant card brand (Mastercard or VISA). This pricing is fixed and in the Interchange-plus pricing model, is also passed through to the merchant at cost.
3. Markup – This is the “plus” portion of the Interchange-plus pricing model. Above interchange and assessments, this is the flat rate charged by your merchant account provider for all costs and services associated with your transactions and merchant account processing.
Based on these three components, the cost of your interchange-plus pricing will depend on the markup by your provider (since it is the only component not passed through at cost). So, while Interchange-plus is the most desirable form of merchant account pricing both for its transparency and potential to reduce cost, selecting the right online payment solution and provider for your business will be key to determining if this pricing structure is right for you. Be sure to ask your provider if they offer Interchange-plus as in most cases, this model will yield substantial savings over the same processing volume when compared to other pricing models such as tiered or bundled.
Taunia Lin Kipp works in operations for Mountain Media, a privately held internet marketing company in New York that serves companies across the country.
Mountain Commerce is an all-encompassing proprietary eCommerce platform of Mountain Media. The shopping cart solution was noted in Practical eCommerce Magazine. Additionally, the company’s popular online payment solution is an affordable way for various merchants to take payment online – from everything to registering for events, driving membership, or as a PayPal alternative.