When businesses apply for a payment provider they’re typically presented with either of the following pricing structures: Blended or Interchange.
However, the key to receiving the best processing rates for your business comes with determining which pricing structure is most likely to benefit your business model.
So what’s the difference?
Interchange Pricing or Interchange ++ as is most commonly used industry-wide, is considered the most transparent billing model of the two options.
Breaking down your processing fees into three clear charges, interchange ++ may benefit some merchants in its variation to a blended scheme’s simpler, but less obvious, pricing proposal.
How is Calculated?
To simplify interchange ++ pricing, let’s break down the costs that will be presented to merchants in three parts:
Interchange (IC): This is a fee charged by the customer’s bank. This amount will vary depending on the card type, i.e. whether it be corporate or domestic, credit or debit etc.
Scheme Fee (+): This fee is charged to your acquiring bank by card providers such as Visa and Mastercard, for the use of their systems.
Processing Fee (+): Your payment processor will charge you a fee for the use of their payment gateway and services.
Blended rates are bundled so that the merchant is presented with, and is paying for, one overall cost each month. There is no clear way to determine what you are paying for, but businesses know that their fees are charged at an equal and unchanged rate month-to-month.
Should I switch from my current pricing model?
If you’re currently on a blended pricing model or vice versa, you may be wondering whether you should switch.
The answer is that there is no right answer.
Whilst interchange ++ may benefit some merchants, blended might benefit others.
Global merchants often experience a significant transaction volume across multiple territories. Whilst blended pricing offers an appealing simplicity, understanding the individual costs behind local card schemes, as well as international vs domestic cards, may push merchants to take on an interchange ++ pricing model to get the best pricing model for each region they process in.
With an interchange ++ pricing model, merchants can effectively see the costs associated with each payment method and strategize to market for the use of some payment methods over others towards their customer base.
Blended can be the preferred pricing proposal for merchants with consistent throughput each month - taking comfort in knowing the exact rate they’ll be paying against each transaction.
Whereas interchange ++ is subject to variation, this can benefit merchants experiencing different processing rates in different territories, however others may seek protection from these upswings and variations straight off the bat - preferring the upfront consistency of a blended pricing model.
If you’re looking for more information on what pricing model is best suited for your business model, get in touch with one of our payment specialists today!