In this blog we go over two of the most common pricing models: tiered pricing and interchange plus pricing.
In this article, I’ll go over two of the most common pricing models: tiered pricing and interchange plus pricing. There are other pricing models available, such as flat rate and subscription, but they’re essentially variations of these two models, so it’s important to have a solid understanding of tiered and interchange plus.
Tiered Merchant Account Pricing
The most popular method because it’s easy to sell and the most profitable for the processor.
Tiered merchant accounts work on a system of “qualification” to determine which rate tier a merchant’s transaction falls into. These are also called “bins,” “rate buckets” or “buckets.” So, a very simple example might look like this:
- Qualified Discount Rate: 1.XX%
- Mid-Qualified Discount Rate: 2.XX%
- Non-Qualified Discount Rate: 3.XX%
At times this is complicated with debit variations creating 4-5-6 tiers depending upon the processor. Doesn’t matter, the concept is the same all around if there is a flat 1 tier or 6 tiers or the standard 3 tier.
Transactions are frequently “downgraded” to a lower level of qualification, meaning a higher cost of transaction. Whether it’s a private or business card, cash back or rewards card, keying the credit card number as opposed to swiping the card and now days even swiping vs. dipping a chip. Oh, and lest we forget the zip code or 3 digit code on the back of the card or even the billing address will often cause a downgrade. What’s more, the various rate tiers obscure the actual interchange fees being applied. It’s impossible to know for certain, and difficult to estimate which rate bucket a transaction will fall into until after the transaction has taken place. That also makes it impossible to avoid paying unnecessary fees when using a tiered merchant account.
Interchange Plus Pricing
Traditionally, Interchange Plus pricing accounts have only been available to businesses that do a high volume of credit card sales — usually $25,000 or more per month. However, the market for merchant accounts is more competitive these days, and now smaller businesses (even startups) can get accounts that work on this pricing structure. So if Interchange clears at $200.00 then you pay that $200.00. Plus you’ll then pay your agreed “PLUS” price which would be for example let’s say “$0.25” a transaction and “0.25%” So you’d simply take your number of transactions by the $0.25 and add that to the total volume you ran times the percentage 0.25% of the volume and add those fees back to the $200.00 interchange and you understand your bill. 99.9999% of the time it will be much lower than any Tier type pricing.
Keep in mind, though, that interchange plug pricing by itself is not a silver bullet. It sets the stage to get competitive pricing, but you’ll still need to ensure you have a competitive quote.
Headquartered in Pinole California, MerchantZoom, Inc. was founded by Wally Arakozie. Previously employed by one of the largest merchant processing companies here in California for nearly a decade. Since the company’s beginnings MerchantZoom, has grown into a reputable national merchant provider. Along with delivering state of the art technology and competitive rates, MerchantZoom, thrives on personalized local customer service and support. In order for your business to ZOOM!
759 Appian Way Ste 1A
Pinole, CA 94564
Content Release Date Nov 27, 2017 – MerchantZoom Inc.
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