Interchange++ vs Blended Pricing:
Removing the Complexity of Merchant Card Acquiring:
Long ago, transactions were simple. The customer would give the merchant cash for a product, and the merchant could immediately put that cash into their system. With the introduction of debit and credit cards, that process became much more complicated. Now, the cash may not be received for two or three days, and part of that profit is lost in interchange fees, card scheme fees, acquirer margin fees, terminal rentals, and many other various fees. Even the pricing schedules add their own level of complexity with every acquirer offering different rates and presenting the schedules in either blended or Interchange++ proposals. However, this complexity does not need to be confusing. By breaking down the pros and cons of each pricing type and all fees included, a merchant cannot just understand their acquiring, but take control and reduce annual fees significantly.
What determines the fee?
When picking an acquirer, it is important to understand what pieces make up the charges. The fees paid on each transaction are the scheme fee – paid to the card brand such as MasterCard or Visa, the interchange – paid to the customer’s bank to cover the risk of the transaction, and the margin – paid to the merchant acquirer. Scheme fees make up a very small percentage of the cost and are relatively similar for each acquirer. Interchange is determined by the card type, card name, region, and entry method. This is the same for all acquirers and therefore is irrelevant when picking an acquirer. Margin is the only piece which is negotiable. While these three pieces are what make up the fee, they may be presented in different ways.
What are Blended and Interchange++ Pricing?
An acquirer may choose to apply their margin as a fixed rate or a variable rate. In interchange++ pricing, the margin paid to the acquirer will always be the same on a transaction regardless of how secure is the transaction or the card type. However, the total amount paid by the merchant for each transaction will vary widely due to interchange and scheme fees varying due to the security of the transaction and which card types are accepted. With Blended pricing, the merchant will always pay the same rate on a transaction of a specific card name regardless of how the transaction was accepted. Note that there will be additional fees on blended pricing if the cardholder is not present or the measures are not taken to ensure the transaction is secure. Because of this pricing schedule, the amount of margin paid to the acquirer will vary, thus moving the risk to the acquirer instead of the merchant.
Benefits of Blended and Interchange++
Choosing the best pricing option relies almost entirely on the profile of card activity for the merchant. A merchant with many low value highly secure transactions will have completely different needs from a merchant with few high value purchases made online. Blended pricing can be a great choice for merchants that expect a high level of unsecure or cardholder-not-present transactions. Blended pricing puts the risk onto the acquirer, and therefore the merchant will know exactly what rate they will pay on each transaction. Interchange++ pricing may be a better pick if a merchant has a very small percentage of unsecure transactions. A clearly stated margin makes it easier to evaluate different proposals against each other and the merchant can benefit from the low interchange fees applied to secure transactions.
Choosing the correct pricing schedule for a company may take some time and focused thought, but it does not have to be a headache. Understanding the profile and choosing which type of schedule is most beneficial eliminates the majority of the confusion before the RFP has ever been submitted to the acquirers.