Interchange Plus Pricing – What is it?
Initially, it might seem overwhelming when you first start doing business with an ISO (Independent sales organization), largely because there are a large number of pricing structures that can intimidate the newcomer. One of those is interchange plus pricing, which sounds a lot more technical than it actually is. Most merchant accounts operate on interchange plus pricing, largely because it is one of the most transparent and least expensive types of accounts to run, especially when compared to tiered accounts. When your business sets up an interchange plus pricing structure, you pay the exact interchange fee in addition to a flat markup to the ISO, which eliminates much of the hassle as well as any overpaying for inflated tiers. And unlike tiered accounts, which can have a variety of rate categories to choose from, interchange plus accounts focus on only two rates: the actual interchange markup percentage in addition to the transaction fee.
Interchange plus pricing was initially only available to businesses who process an extremely high number of credit card sales on a month-to-month basis, usually in excess of $25,000, but increased competition on a global scale has began to create a scenario where interchange pricing is now available to low volume businesses, and even new businesses in some cases. There are certain websites such as CardFellow which offer nothing but interchange plus pricing plans in conjunction with flat rate pricing quotes, regardless of whether or not that business has any prior processing history.
As to whether or not interchange plus pricing is the best choice for your company, it really comes down to personal preference. Interchange plus pricing is often the best model when tiered, but ERR and other pricing structures can be just as cost effective in the right hands. It is important to understand that it is not specifically interchange plus that is the absolute best pricing structure for your company, it’s just that these pricing models pass the interchange directly to merchants in one form or another, as opposed to pricing structures which generalize categories and have a higher inflation of tiers.
While it is true that certain other pricing structures can be just as cost-effective as interchange plus depending on the circumstances, the value of interchange plus pricing comes from the simple fact that the interchange allows you to track results consistently and in an easily-deciphered format, as well as making sure that prices are consistent throughout all categories. It is the preferred method simply because it is one of the most transparent types of pricing available for merchant accounts, and basically boils down to your ISO passing along the markup profits to you. Depending on the size of your business this could be anywhere from 0.05% to 1% plus an actual fee for each transaction. As the market becomes more and more competitive, merchants just like you are able to find information on the Internet about how things really operate, which is why companies are now forced to offer the same options to small companies which were once exclusive to the larger ones.