Comedic pianist Victor Borge once said that the shortest distance between two people is laughter. If you’re using a data-sharing payment processor, then the shortest distance between a customer and loyalty is simply the transaction. If your payments partner isn’t turning those swipes into new strategies for loyalty and business growth, then keep your eyes open.
Transparency is another necessary characteristic of great payment processors. Hidden fees are for the birds, and processors need to do more for their merchants than just move cash from one palm to the other.
Two forms of payment processing are the most prevalent today: Interchange Plus and the less preferred Tiered Pricing.
This model may also be called Bucket Pricing and is marketed as a way to simplify pricing. It groups the hundreds of different interchange programs into a handful of buckets with different rates, commonly called Qualified, Mid-Qualified and Non-Qualified tiers. While the tiers look simple on the surface, they actually hide important rate information.
There’s nothing transparent about tiered pricing because processors can revise how they charge you whenever they want. MerchantCouncil.org advises against tiered pricing, saying that it creates “inconsistent buckets and overpaying for inflated tiers”.
- Processors group cards in tiers and set tier rates at their discretion
- Processors can change tier groupings and rates whenever they like
- Beware of a “teaser tier” scheme that promises low rates for a fraction of debit cards
Interchange Plus Pricing
This is also referred to as Cost Plus, True Pricing or Pass Through pricing. You may already know what Interchange is—the fees set by Visa, MasterCard and Discover— but the “Plus” refers to a per-transaction fee charged by your processor in exchange for eliminating excess markup on interchange. No hidden fees, and a per-item charge instead.
Interchange Plus simply calls the markup for what it is—a markup—and shows this transparently to the merchant. Markup can take the form of a per-item fee on settled transactions, authorizations, or both, as well as a discount on settled transactions.
- Exact interchange fee, set by Visa, Mastercard and Discover “passes through” at cost
- Pay the exact interchange fee plus a fixed processing fee
- If the card associations reduce the interchange fee, savings pass through to you
There are only two rates with Interchange Plus: your interchange markup percentage and a fee per transaction. MerchantCouncil.org gives a great example: “A business with an interchange plus merchant account with a rate of 0.35% and an authorization fee of $0.15 would pay the wholesale processing rate for every transaction plus 0.35% and $0.15 per transaction.” That’s it.
At Upserve, we use the Interchange Plus model and pass on interchange rates at cost. We also add value by using a revolutionary technology that turns your cash register into a marketing machine that grows sales.