Understanding Interchange Plus, Interchange Plus Plus, and Blended Interchange Plus: A Guide for Merchants
When setting up a payment processing system for your business, understanding the different interchange pricing models is crucial. This article provides an in-depth comparison of Interchange Plus, Interchange Plus Plus, and Blended Interchange Plus. By the end of this guide, you will have a clear understanding of what distinguishes these models and which might be the best fit for your business.
What is Interchange Plus?
Interchange Plus is a pricing model that charges merchants the actual interchange fees set by card networks such as Visa and MasterCard plus a fixed markup from the payment processor. It is known for its transparency and straightforward structure.
Definition and Structure of Interchange Plus
Interchange Plus pricing consists of two main components:
Interchange Fee: This is the fee that goes to the card-issuing bank, as determined by card networks like Visa and MasterCard. Processor Markup: This is a fixed fee or percentage that the payment processor adds on top of the interchange rate.Example of Interchange Plus Pricing
Let’s say the interchange fee is 1.5% and the processor markup is 0.10% per transaction. The total fee for the merchant would be 1.6% per transaction. For a transaction amount of $100, the merchant would pay $1.60 in fees.
Pros and Cons of Interchange Plus
Pros: The fee structure is highly transparent, as merchants can clearly see how the cost is composed. It is simple to understand and easy to budget for. It offers a predictable and consistent fee structure.
Cons: It may not always result in the lowest costs, depending on transaction volume and other processing fees. The markup may not be consistent across processors.
What is Interchange Plus Plus?
Interchange Plus Plus is similar to Interchange Plus but includes an additional layer of fees, making it potentially more complex for merchants to navigate.
Definition and Structure of Interchange Plus Plus
Interchange Plus Plus pricing includes the following:
Interchange Fee: Same as in Interchange Plus. Processor Markup: Same as in Interchange Plus. Additional Fees: This category can include a variety of other fees such as monthly fees, gateway fees, or transaction fees, which are added to the interchange plus pricing.Example of Interchange Plus Plus Pricing
Using the same figures as before, let’s add an additional fee of $5 per month. The merchant would pay the interchange fee, the processor markup, and the additional fee. For a transaction amount of $100, this would be a total of $1.60 (interchange markup) $5 (monthly fee) $6.60.
Pros and Cons of Interchange Plus Plus
Pros: It offers more options for fee adjustments and discounts. It can sometimes be less expensive for merchants with lower transaction volumes.
Cons: The pricing is less transparent, as the additional fees can obscure the true cost of the transaction. It can be more complex to manage and budget.
What is Blended Interchange Plus?
Blended Interchange Plus is a pricing model that combines elements of both Interchange Plus and blended pricing. It aims to provide a simplified fee structure for merchants while still offering a transparent breakdown of the transaction costs.
Definition and Structure of Blended Interchange Plus
Blended Interchange Plus typically offers a single blended rate that includes both the interchange fees and the processor markup. However, it may not break out the interchange fees as transparently as the pure Interchange Plus model.
Example of Blended Interchange Plus Pricing
A merchant might pay a single rate of 2% per transaction, which includes the interchange fee and the processor markup, without detailed visibility into how much of that rate is the actual interchange fee. For a transaction amount of $100, the merchant would pay $2 per transaction.
Pros and Cons of Blended Interchange Plus
Pros: The fee structure is simplified, making it easier for merchants to understand and manage. It is more straightforward for budgeting and forecasting purposes.
Cons: Merchants have less transparency into the true costs of transactions. It may not be the most cost-effective option for all merchant types.
Summary of Differences
Transparency
Interchange Plus offers the highest level of transparency regarding interchange fees, making it ideal for merchants who prefer to fully understand their cost structure. In contrast, Blended Interchange Plus provides less visibility into the cost breakdown, which can make it simpler but less transparent. Interchange Plus Plus, although similar to Interchange Plus in terms of transparency, can include additional fees that complicate the overall cost.
Complexity
Interchange Plus is the simplest model to manage, but it may not always be the most cost-effective. Interchange Plus Plus includes additional fees, which can make it more complex to navigate. Blended Interchange Plus balances simplicity and transparency, making it a good middle ground for many merchants.
Cost Structure
Blended Interchange Plus simplifies the costs by providing a single rate, which can be easier for some merchants to manage. However, it may not always offer the lowest costs, whereas Interchange Plus and Interchange Plus Plus can sometimes be more cost-effective for specific merchant types.
Conclusion
When choosing a pricing model for your payment processing system, consider your transaction volume, the types of cards used, and your preference for transparency. Understanding the differences between Interchange Plus, Interchange Plus Plus, and Blended Interchange Plus can help you make an informed decision that aligns with your business needs and financial goals.