Interchange Plus Pricing vs Tier Pricing

Interchange Plus Pricing vs Tier Pricing

Interchange Plus Pricing

Interchange Plus credit card processing, also known as Cost Plus processing, is a program in which the interchange rates that are assigned by the major credit card brands (Visa, MasterCard, AMEX and Discover) are passed unchanged directly to the merchant. By leaving the rates unchanged, Interchange Plus provides complete credit card processing clarity to the merchant. The merchant simply pays a small fee to the merchant service provider for the processing. Another major benefit of Interchange Plus, is the flat fee pricing it offers. This pricing makes it much easier for a merchant to successfully analyze and plan all future credit card processing costs. Interchange Plus pricing is used by most large merchant corporations in the U.S.

Pros:

-The cheapest processing option overall.

-100 % clarity on all processing costs.

-More understanding of different card rates.

-Flat fees mean no surprises.

Cons:

-Takes some time to learn the different processing rates for each type of credit cards.

-Requires you to be more involved in your day-to-day card processing.

Tier Pricing

Introduced as a way for merchants to process their credit cards in an easy and simple way, Tier Pricing has been criticized by credit card experts, because it doesn’t provide any details or flexibility regarding credit card processing fees. Another common problem in Tier Pricing, is the mismatching of cards and rates. For example: A credit union debit card (usually a very low interchange rate type) can be billed to the merchant using a rewards card rate (one of the most expensive) transaction. This mismatching is legal and happens all the time. The reason has to do with the lack of variety (or categories) offered in Tier Pricing.

In Tier Pricing, all transactions are billed under just a handful of general categories, usually four:

-Debit aka. Check Cards

-Qualified (standard credit cards)

-Mid-Qualified (hand typed cards such as phone orders/mail orders)

-None Qualified (rewards cards, international cards, etc.)

Since there are no set rules or guidelines determining what cards will go under each category. Mismatching often occurs, and leads to millions of dollars being over charged to merchants per year.

Pros:

-A simple introduction to payment processing for the novice merchant.

-Minimal time commitment from the merchant.

– Zero learning curve.

Cons:

-Results in much higher processing costs overall.

-No details on what exactly the merchant is paying for.

-Zero understanding of industry card pricing.

Interchange plus vs. tiered pricing model. Which is better?

I strongly recommends Interchange Plus pricing, even to novice merchants. The enormous benefits over Tier Pricing, make switching to Interchange Plus pricing a smart business decision. As discussed, Interchange Plus provides merchants complete transparency, as well as the ability to easily analyze and understand their exact processing costs. This detailed information also allows the merchant to compare pricing programs among different merchant service providers. Of course, the biggest benefit of Interchange Plus pricing is it provides merchants a lot of flexibility, beyond the limitations of Tier Pricing. How? By not narrowing down so many different card types into just a handful of generic categories, transactions get processed more accurately- which leads to much lower processing rates on corporate, commercial, business, government, and purchasing cards. This benefit alone, leads to thousands of dollars in savings per year.