One of the most important questions any business should ask themselves when looking for a new merchant account or merchant services provider is “how will this service impact my profitability.” It can be easy to simply write off merchant fees as a cost of doing business – and certainly, they are – but small differences in those fees can have big impacts on a merchant’s bottom line. A difference of a fraction of a percentage point or a few dimes in fees, when applied over every single transaction a business does, can easily be the difference between profit and loss – success and failure. So, it’s incredibly important for merchants to realize that not all pricing plans are created equal, and to understand the options they have available to them. One pricing plan that merchants looking for a new payment processor should keep an eye out for is interchange-plus pricing – a less common, but highly beneficial pricing model that helps to eliminate overcharging by keeping fees grounded and transparent.
What is Interchange-Plus Pricing?
Interchange-plus pricing is a pricing model that sets transaction fees based on the actual interchange rates published by the major card companies. Those interchange rates are not static, and they fluctuate greatly depending on the type of card being used, as well as the type of transaction (for instance, card-present vs. card-not-present) and the industry in which the transaction is being made. The overall interchange fee is made up of two portions: basis points and an authorization fee. The basis points represent the percentage of the transaction charged, and the authorization fee represents a small fixed charge. The average interchange fee in the U.S. hovers around 2.0% of the total transaction, but some low-fee cards, like Visa debit cards, can have basis-point fees as low as 0.5%. With interchange-plus pricing, the payment processor tacks on a small fixed markup (the “plus” in interchange-plus) to the published interchange, which then determines the total fee charged to the seller. Since the interchange rates are publicly available from all the major card companies and the markup is fixed, the interchange-plus model, while certainly not the simplest, is by far the most transparent pricing structure available, and makes it possible for merchants to analyze their costs on a much deeper and more accurate basis than other pricing models.
How Does Interchange-Plus Differ from Other Fee Structures?
Whereas interchange-plus pricing is dynamic and changes based on the type of card, type of transaction, and type of merchant involved, many merchant accounts, and essentially all third-party processors, use fixed fees for all transactions, regardless of actual interchange rates. Those fees are generally made up of a set percentage of each transaction, plus a small fixed amount, which combines into the total fee charged to sellers. That model certainly has some benefits, the most significant being that it’s incredibly straightforward. Sellers always know exactly what they’re going to pay on every single transaction in just a quick glance, and for some people, that has value. However, that simplicity is generally where the value stops. The difference between the actual fees sellers pay and the interchange rates charged by the companies is called the float, and the float on non-interchange-plus transactions can quickly become a problem that wipes out any utility provided by the simplicity of fixed fees.
What are the Primary Benefits of Interchange-Plus Pricing?
Aside from the unmatched level of transparency involved, the primary benefit of interchange-plus pricing is that it has the potential to save merchants a lot of money. With standard merchant accounts, fees are normally still relatively reasonable, but they often simply can’t match the rates provided by interchange-plus. With third-party processors, flat fees often exceed 2.5% + $0.15 per transaction, well above the 2.0% national average interchange fee and astronomically higher than the fees associated with low-interchange rate cards and transactions. PayPal, for instance, charges a whopping 2.9% plus thirty cents on each and every transaction processed – a rate not even in the same universe as the kinds interchange-plus pricing can offer. For merchants selling high-end goods, the difference in the percentage fee between interchange-plus and other pricing structures can have a major impact on the profitability of each transaction. For merchants selling high volumes of low-cost goods, the gap can represent the difference between profit and loss altogether.
Where Can Merchants Access Interchange-Plus Pricing?
Interchange-plus is far less common than the flat fee structures previously mentioned for one simple reason – it isn’t as profitable for the payment processor. That makes it less attractive to processors despite all of the benefits it provides to sellers. There are no third-party processors using anything even resembling interchange-plus pricing, but sellers looking to take advantage of it can find it on offer from certain select merchant services companies. BAMS is one of those companies, offering interchange-plus pricing to all qualifying merchants, as well as a full host of other benefits and merchant services.
Sellers looking for a new merchant account should always ensure they have a clear picture of the fee structure involved before signing on the dotted line, and BAMS has a very unique method of painting that picture. Interested merchants can sign up for BAMS’ unique five-point pricing plan, in which a member of the BAMS team will actually comb through the merchant’s most recent account statement from their existing provider and identify, line by line, exactly where BAMS’ interchange-plus model would result in savings, and by how much. That represents a demonstration of the transparency offered by interchange-plus pricing and just one of the many reasons that thousands of merchants across the globe trust BAMS with their payment processing.
In addition to interchange-plus pricing, BAMS offers unmatched value to our merchants, including next-day funding, advanced chargeback and fraud protection, expert assistance with PCI compliance, advanced reporting and analytics, and a full host of powerful integrations. BAMS merchants also get free access to IRIS CRM, one of the most powerful customer resource management platforms available today. We’re so confident that our interchange-plus model will save you money that we offer a low-price guarantee and will happily match any of our competitors’ offers. Get your free five-step price comparison and see what interchange-plus pricing could be doing for your company’s bottom line today.