Credit Card Pricing Fee Structures
Interchange Plus Pricing
For established businesses, Interchange Plus is undeniably the best fee structure. It is transparent and highly detailed. There are over 200 interchange rates, which are basically determined by type of business, type of card and how the card information is processed and risk assessment. Debit cards have lower interchange rates than credit cards because funds are deducted directly from cardholders’ bank accounts. Interchange rates are determined by the banks (card issuers) and the networks, such as Visa or MasterCard. The Plus is the processors’ markup over Interchange. Until recently, interchange plus was only available to larger, established organizations. Today, interchange plus pricing is available to all qualifying businesses. It’s just a matter of locating a merchant services provider that offers it. To see current interchange rates please visit our interchange tab in the resources section.
Ways to lower interchange rates:
The lowest rates occur when the card is present and swiped (CPS). Manually entered and e-commerce transactions have higher interchange fees because without the card there is increased risk that the transaction may be fraudulent. It is important to settle or batch your transactions every day to avoid downgrades to higher interchange rates. Also, enter all invoice numbers and tax amounts, when applicable. Make sure you have received approval or authorization for every transaction.
There are close to 280 interchange categories. Tiered fee structures simplify pricing by reducing those categories into three buckets or tiers: Qualified, Mid-Qualified and Non-Qualified. Determining which tier the transaction falls into depends on many variables. Some objective. Others subjective and vary from processor to processor. These variables include whether it is a standard card or a rewards card; was the card present and swiped or was it key entered or an online transaction. Tiered pricing is considered the most deceptive form of pricing. Tiered pricing hides interchange fees and groups transactions allowing for excessive, hidden mark up. By having only a few tiers, processors typically “round-up to the highest rate in the tier. Because each merchant service provider can set which rate bucket the various interchange categories will qualify to, it’s impossible to accurately compare rates and fees from different providers unless you know in advance how each provider sets its various interchange categories. Many processing companies will offer what appears to be a very low rate, when in actuality that rate is for “Qualified” transactions, but they charge exorbitant pricing for mid and non-qualified transactions which they determine arbitrarily. Because of the subjective nature, and lack of transaction history detail, the merchant doesn’t really know what they are paying for and it is next to impossible to get a competitive, “apples-to-apples” cost comparison analysis.
Flat or Blended Rate Pricing
Flat or blended rate fee structures are not meant to be low cost, but they are quick and simple to set up and use. It is similar to “tiered” pricing., but all tiers are blended into one flat rate. Companies that offer this type of pricing are not “real” processors. They are actually “aggregators” that use one merchant account to process transactions for multiple businesses. Flat rate pricing for card present or “swiped” transactions is typically between 2.7-2.9%. For online or key-entered transactions, the rates are close to 3.5%. Flat rate processing costs roughly 20% more than other pricing structures. For small businesses, the simplicity and in some cases, no monthly fees make flat rate pricing worth considering. Also, some flat rate processors include valuable add-ons or features. However, some of these companies’ flat rate pricing, including features can cost well over 5%.
American Express is different from Visa and MasterCard in that AMEX acts as both the card association and bank. As such they can set their own rates. The primary reason that AMEX rates are higher is that customers pay off their balances every month, which removes the interest revenue from unpaid balances that other credit card companies make. Until very recently, accepting American Express cards was a real hassle, requiring merchants to sign up directly with American Express. American Express introduced their OptBlue Pricing plan in 2014, which allows merchants processing under $!M per year in AMEX to accept AMEX cards through their regular merchant account provider. Not all merchant services companies offer OptBlue, but many do.