Credit Card Processing – Is Interchange Plus Pricing Always the Cheapest Way to Process Credit Cards

The interchange plus merchant account pricing model is quickly becoming the most sought after form of pricing for businesses seeking the least expensive merchant account. It is often touted as the only truly transparent way to process credit cards. While this may be true, it doesn’t tell the whole story.

Interchange plus is a broad term used to refer to merchant account pricing models that are based on passing actual interchange rates to the merchant. So long as a provider’s fees are based directly on actual interchange categories – the pricing they’re offering can considered interchange plus.

The three main merchant account pricing models; tiered, ERR and interchange plus are giving way to the latest and greatest of all – the flat rate merchant account. The flat rate merchant account pricing model is a form of interchange plus pricing, but there’s a very distinct and important difference. On a flat rate model, the provider’s profits aren’t tied to the merchant’s volume. This means that the provider doesn’t make more when the merchant does – I.E. the merchant gets to keep more of their money.

The tiered model is the oldest type of pricing that has been used since the days of the credit card processing industry’s infancy when Visa and MasterCard combined had only a few interchange categories. Those days are long gone, and the card brands have added over a hundred interchange categories. Back when there were only a few, tiered merchant pricing was a lot clearer and easier to interpret than it is today. With the sheer number of categories on the current interchange schedule, the tiered pricing model has become an expensive relic of the past the merchants in the know are quickly learning to avoid.

Next on the chopping is a pricing model called Enhanced Recover Reduced or ERR. ERR is mix of tiered and interchange plus pricing model with a bit of a twist. On an ERR model, the merchant pays either the qualified rate listed on their schedule of fees or a combination of the sum of the qualified rate, non-qualified surcharge and a hidden fee increase that is the difference between actual interchange and their qualified rate.

The specifics of ERR are beyond the scope of this article, but it’s safe to say that ERR is often used as a tool to exploit small to medium sized merchants that aren’t aware of its hidden expenses. There is a detailed explanation of ERR over at MerchantCouncil if you would like to learn more.

Finally, the interchange plus model has quickly become the pricing to have and there’s no denying that it’s a less expensive, more transparent option than tiered or ERR. But interchange plus has one big downfall – the more money a merchant makes, the more profit the provider reaps. This isn’t so unusual because it’s been a constant with every merchant account pricing model – until now.

An inexpensive, transparent merchant account pricing model is now available as a flat rate. On a flat rate model a merchant pays the exact interchange rate dictated by Visa and MasterCard. The provider makes their money from a flat monthly maintenance fee.

There are many benefits to the flat rate pricing model, not the least of which are that it’s less expensive, easier to track and the provider’s profit stays the same regardless of how much the merchant processes. Flat rate merchant accounts are emerging and are still hard to find. Check website like CardFellow for providers that are venturing to offer this new pricing model that will surely change the landscape of the bankcard industry.