Interchange ++ vs blended pricing
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 likely to benefit your business model.
So what’s the difference?
Interchange Pricing
Interchange Pricing or Interchange++ as is most commonly used industry-wide, is considered the most transparent billing model of the two options.
This type of pricing breaks down your processing fees into three clear charges, which we’ll cover below. Interchange++ may benefit merchants who have a better understanding of the pricing structure and know what to look out for, often larger and more established businesses.
How is it 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 (+): Card providers such as Visa and Mastercard, will charge you for the use of their systems.
- Acquirer Fee (+): Your own bank or payment processor will charge you a fee for the use of their payment gateway and services.
Blended Pricing
Blended rates are much simpler. Each fee is bundled together 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.
This type of pricing is suited to smaller businesses that are starting out. It can sometimes cost more than interchange++, but its basic structure is what makes it an ideal choice.
Should I switch from my current pricing model?
Whether you’re currently on a blended pricing model or interchange++, you may be wondering whether you should switch to the alternative.
The answer is that there is no right answer.
Whilst interchange ++ may benefit some merchants, blended might benefit others and it will all depend on which benefits suit your business’s needs.
For example, global merchants often experience high transaction volume across multiple territories. This means they will be dealing with a range of local card schemes with their own costs, as well as international and domestic cards. The need to understand these independent costs may push merchants to take on an interchange ++ pricing model to get the best pricing model for each region they process in.
Whereas, a small local business with limited payment methods will unlikely have this issue. Therefore, the simplicity of blended pricing may be appealing.
Why Interchange?
Interchange++ is subject to variation in which merchants can benefit from effectively seeing the costs associated with each payment method and the processing rates in different territories. This knowledge can help them better strategise which payment methods to use in which markets.
Why Blended?
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.
It’s ideal for those who may seek protection from the upswings and variations from the interchange pricing model, 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, whether you take payments online or in-store, take a look at our interchange fees explained blog, or get in touch with one of our payment specialists today!
