Understanding how to read your statement:

There are usually three main types of billing. Tiered, Interchange Plus and Flat Rate pricing. One method is not necessarily better than the other, however, some create more transparency than others.

Tiered vs. Interchange Plus Pricing

Interchange Plus Pricing: 

Interchange Plus has become a widely used pricing structure over the last few years and is sometimes referred to as “cost plus” or “pass through plus” with all terms referring to the same thing. To help fully understand Interchange Plus pricing, we need to identify the two main components:

1. Interchange – This is the fee that is charged by the card companies, such as Visa, Mastercard and Discover and passed on to the merchant as cost.  Payment processors do not control these rates, and every merchant pays at least the true cost of interchange.

2. Plus – The “plus” is the markup that a processor charges in addition to interchange. This comes in the form of a percentage rate and a per transaction. This is determined for each business separately and usually based on volume, transaction size and business type. This is also the part of the pricing that allows you to compare your current pricing to that of another company.

That leads to the most commonly asked question: How much are the interchange rates?

Interchange rates vary based on the type of card used (debit or credit), how it is acquired(swiped/dipped or keyed) and the size of the transaction (the level of risk involved).  Generally speaking, the more premium a card is and the more rewards a card offers, the more it's going to cost you.

So, when you hear the term “interchange-plus pricing”, it simply means the credit card company is passing their cost on to you and adding a markup meant to cover the cost of doing business and to generate a profit.  Interchange-plus pricing is more favorable for small businesses because it's the most transparent and the merchant will end up paying much lower overall.

Tiered Pricing:

Tiered Pricing is a common pricing model that breaks fees down into three categories - Qualified, Mid-Qualified, and Non-Qualified.

Transactions falling into the Qualified tier will have the least amount of fees while Mid-Qual and Non-Qual will have higher fees. The type of card used, type of transaction and transaction size will determine the tier the transaction will fall into. Debit cards and non reward credit cards usually fall under the Qualified tier while transactions using rewards cards, corporate cards and non present transactions will fall into Mid-Qual and Non-Qual. 

Tiered Pricing creates a very easy to understand statement, however, it also lacks transparency and makes it impossible to know how much is going to your processor. This typically means a higher overall cost than interchange plus. And beware, many processors only advertise their lowest “Qualified” rate to entice you, when most of your transactions will end up falling under mid-qual or non-qual tier. 

Additional Definitions

Flat Rate Pricing: Is meant to be simple and easy to understand, but not competitive. Flat Rate pricing is when a processor charges the merchant based on a fixed percentage rate of volume and a fixed transaction fee. Becoming increasingly popular, most common flat rates are currently between 2.75% - 2.9% for swiped transactions and often charging around $0.30 per transaction. Flat Rate pricing may be a good choice for very small businesses that run few transitions each month and want a limited and simplified monthly statement. 

Transaction fee: This is the amount you are charged for each transaction that takes place. (ex. 25 cents per transaction)

Discount fee: This is the percentage charged on the sales amount or volume you have for any given batch. If you processed $10,000 and the discount fee is 10 basis points or .10%, you would pay $10 in discount. If you are on tiered pricing, this discount amount is built into the tiered rates. If you are on Interchange Plus pricing, the discount amount would be separate from Interchange charges.

Misc fees: These are fees like PCI compliance, gift card fees, security fees, platinum package fees, etc.. that a processor might charge and are most often found at the bottom of your statement.

Monthly fees: These generally come in the form of a monthly subscription fee, monthly minimum, statement fee, customer service fee, etc.. that a processor might charge.

Annual fees: Debit networks often charge annual fees, so if your processor chooses to pass those along to you, you would see this once a year on your statement. Sometimes processors charge their own annual fees as well.

Surcharging: This pricing allows you to pass on a portion of the cost of accepting credit cards to your customers. It’s an additional fee that a merchant adds to a consumer’s bill when he or she uses a credit card for payment. The fee is automatically calculated and shown as a separate line item on the consumer receipt. You must also display signage at your checkout counter (or wherever the transaction occurs) that you charge a specific % for cc transaction. You’ll still be responsible for paying your processor, but surcharging allows you to essentially collect a portion of the fees from your customers and pass it on to your processor instead of having to eat the cost yourself.