If you have been doing your homework and researching different payment processors, no doubt you have come across the term “Interchange.” This is the term used in the payment processing industry to describe the processors’ cost. Another words, interchange percentages are the percentages paid back to VISA/MasterCard/Discover association brands. Each payment processor has to pay the same interchange fees back to the association brands, so what this means is that every payment processor shares the same cost. Some people believe that larger payment processors enjoy lower costs, this is simply not true. So why is interchange so important to understand?
The answer is simple: once you understand what interchange is, you can receive the best rate in the industry. There are a number of ways a processor can price out an account, please see the section 3 Tier Pricing Model. With interchange plus price model, you receive direct cost from VISA/MasterCard that is passed down without any inflation. Most processors must show interchange as a separate fee from their service charges and discount rates. So the result is simple, you see what the cost is to the processor and your markup directly on the statement. No more guessing as to why you were charged a high percentage, it’s all in front of you. So is an interchange plus model better than any other pricing model?
Yes it is! With virtually any other 3-5 tier pricing model, profitability is greatly inflated and not at all transparent. I’m sure you hear about the infamous 1.69% discount rate, or 1.49% discount rate. These rates are considered qualified rates through many payment processors and they carry a significant downgrade surcharge for rewards, corporate and travel cards (please see multiple tier pricing). Some of these downgrades can take your discount percentage as high as 4.15%. Ouch. The question becomes “what transaction comprise these different tiers and why are these percentages charged?” There is no clear answer to these questions, hence no transparency. However, the interchange plus model allows you to see each different type of card processed through your account and we describe how many of these cards were processes through each qualification. The bottom line is you never guess why you were charged a certain percentage.
On an average, merchants like you can save anywhere between 20% to 60% on their processing just by switching over to the interchange pricing model.
If you have further questions on how this could benefit you, please call our office at 866-799-8975 for a free no pressure consultation.