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Congratulations! People want to spend their money on your products or services and now you find yourself looking for the most convenient, secure and cost effective way to accept their payment. That is awesome...except for one thing, now you have to learn the lingo that goes with the world of merchant accounts.  If you have been looking in the right places you will have already come across terms like; Interchange Plus pricing (aka pass through) and Tiered pricing (aka bucket). Almost all processors will use one of these two payment pricing structures when handling your merchant account.

If you are looking in the right places you will have also learned that there is no single merchant account rate. Far from it.  There are hundreds and they are all managed, like many other items, by wholesalers and retailers.  The "wholesaler" in this situation is going to be the credit card companies themselves, MasterCard, Visa, Discover, etc. They are going to determine the wholesale price, or the interchange price, of each transaction. Out of the goodness of their hearts, they will publish these interchange rates (all 500 hundred or so of them) twice a year for all of us to behold. Look...here are some handy links now: Visa Interchange Rates and MasterCard Interchange Rates.

These rates are determined by the type of credit card being used, the way a transaction is processed, the type of business accepting the credit card, the industry that business is in, whether the transfer is online or not, etc. This information and more can affect into which interchange category a transaction qualifies.  It is quite complicated.

Next the "retailers", or processors in this case, decide how to add their mark-up to these predetermined rates.   With the tiered pricing system, they essentially grab handfuls of rates from these lists and then drop them into various "pricing buckets."  You will  find that a processor will usually have anywhere between three to twelve (or even twenty) of these buckets, each full of various interchange rates.  Each bucket will then be assigned a flat marked-up rate, also known as a merchant discount.  When a payment is processed, regardless of the actual interchange rate associated with the card that was used, it will bear the mark-up amount assigned the bucket that it's interchange rate has fallen in.  'Qualified' or 'qualification' are terms often used in describing these pricing tiers or buckets.

buckets 2

Tiered pricing is simple to implement and very profitable for processing companies, but it is inconsistent and expensive for merchants.  For many years it was all that small business owners were offered. They dreamed of utilizing Interchange Plus pricing, but that was reserved only for large companies.  But over the years as competition grew, more and more processors began to make Interchange Plus pricing available to small businesses as well.

The way Interchange Plus processors create an affordable and consistent payment product is by taking the interchange rate directly from MasterCard, Visa, etc. and then adding their fee in the form of a small fixed percentage to each transaction.  Hence, each transaction is individually charged in accord with the actual wholesale rate assigned to the card that was used.

Those are basically the two options you need to explore when  choosing a merchant account.  National Processing feels better about offering Interchange Plus because it fits in well with our emphasis on customer service, not to mention...it feels SO GOOD to show people how much they save on Interchange Plus.

Posted in credit card processing, Credit Cards, Merchant Account, online payment processing, Online Payment Solutions, Payment Processing on Mar 07, 2013