Any business that sells something or provides a service will at some point apply for a merchant account with a payment provider and usually, they’re offered a couple of different pricing options. The most common options are Blended Pricing or Interchange ++ Pricing – but how do you know which one is right for you? In this piece, we’ll tell you what you need to know about both of these pricing models.
Interchange ++ (IC++) Pricing
Either just called Interchange Plus Pricing and sometimes referred to as Interchange Plus Plus, this is a very transparent pricing model, and many merchants prefer this route. This is because the Interchange++ model breaks down the processing fees into three clear distinct areas, so when you receive your statement, you see exactly what your fees pay for. Blended Pricing might well be a simpler pricing model for simpler reconciliation, but it’s less transparent than Interchange ++ Pricing.
With Interchange++, there are three costs as mentioned above and these are as follows:
· The Interchange or IC element is the fee that your customer’s bank (the issuer) charges, and varies depending on the type of card they use e.g. a corporate card has a different fee associated with it than a personal credit card, and a debit card also has a different fee attached to it and so on.
· Then there’s the scheme fee, which is the fee charged by the card network provider e.g. Visa, MasterCard or American Express and covers the use of the card scheme’s infrastructure to send and receive the transaction messages between the appropriate financial entities.
· Finally, there’s the processing fee a.k.a. Merchant Service Charge (MSC) which is the fee charged by your payment processor to cover the use of their payment gateway and payment-related services.
Unlike Interchange++, Blended pricing, also known as flat-rate pricing, offers a simplified fee structure where the processor/acquirer charges a single, fixed rate for all types of transactions e.g. 2.9% and $0.30. This means that regardless of the type of card used (e.g. debit or credit card) or the interchange and/or scheme fee category associated with the transaction, the merchant pays the same rate.
Advantages of blended pricing include simplicity and ease of understanding. It eliminates the need for you to analyse and distinguish between various interchange categories, making it easier to calculate costs.
One drawback of blended pricing is that it may ultimately result in higher costs for businesses that predominantly process lower-cost transactions, such as debit card transactions. Since the fixed rate applies to all transactions, you may end up paying more than you would with interchange ++ pricing for lower cost transactions.
So which Model Is Right For You?
This is a tricky question to answer as there’s no right or wrong choice. Some merchants will prefer Interchange++ and others will prefer to use Blended Pricing. Perhaps for those merchants who operate on a global level and deal with large transaction volumes, Interchange++ might prove a better solution, as there will always be multiple card costs associated with different providers. It’s also potentially better for businesses with variable transactions.
Blended Pricing might be better for those merchants who experience a constant stream of regular sales every month so they may prefer something that reflects how their business operates.
Of course, there’s no guarantee which is better with either pricing model, and perhaps there’s not much difference in the long-term no matter which you choose for your business. It might be worth researching what other businesses similar to yours use as a pricing model before you make a final decision. Obviously, you can change your pricing model at a later date if one doesn’t suit your business’ needs.