There are four kinds of MSP pricing models you should know about:
This model is the most commonly accessed by merchants. It simplifies a wide number of processing rates into three tiers: qualified, non-qualified, and mid-qualified.
With this model, the tier a transaction falls into will depend on criteria established by a processor. This model might seem appealing because it simplifies numerous variables into three tiers, making it easier to decipher your monthly statement. While it might be easier to understand the numbers, they’ll frequently be much higher than what you anticipated.
Furthermore, the model makes it impossible to discern the charges allotted to the issuing bank, your provider, and credit card association. The model can also be deceptive because they’ll advertise the lowest possible rate, but won’t qualify most transactions, and will process at a higher rate.
This model is slightly different. You’ll still cover the interchange rates that go to the credit card associations and issuing banks, but you’ll pay a membership fee monthly and a fixed charge per transaction.
Based on your business’s size and nature, the pricing model could potentially lead to lower costs overall than interchange-plus pricing. Nonetheless, very few processors offer it currently.
Interchange Plus Pricing
This model breaks down the costs going to credit card associations and issuing banks, permitting you to view the markup you’re incurring for transaction processing. This pricing model is much more transparent but makes your statement tougher to read. In most instances, it will be a small cost to pay because interchange-plus pricing rates are typically lower than tiered ones.
Flat Rate Pricing
This model resembles tiered pricing, except they blend three tiers into a flat rate for every transaction. Naturally, the rate is somewhat higher than what it would cost you under a tiered plan. Nonetheless, the lack of a monthly fee can make it generally affordable for seasonal or small businesses.
How Does Interchange-Plus Pricing Work?
Although the actual numbers can get somewhat complex, it’s quite simple at the core. The model comprises two elements: “a plus” and an “interchange.” The former is the amount above the interchange expenses that you’ll need to pay your processor. It denotes their markup for your transaction processing. It’s also designed to cover their costs of conducting business and generate profit as well.
The latter, on the other hand, is the transaction percentage that must be received by the credit card association and issuing bank. Since your processor must pay this charge, it will fall on you. Typically, these rates are expressed as the markup plus interchange rate, which can be a proportion of flat transaction fees.
In terms of charges, the credit card associations set the fees directly and they could become complicated. After all, different rates exist for credit and debit cards, as well as the varied rates for different kinds of credit cards.
How Interchange-Plus Pricing Saves Money?
The major flaw with the conventional tiered-pricing model is that it conceals the interchange expenses and permits processing companies to charge more markup. The consolidation of a wide range of rates into a reduced number of tiers means that processors can round up to the highest rate in all tiers.
By identifying the actual interchange expenses, this model allows you to recognize the markup. In turn, this encourages processors to establish reasonable markups. This industry is extremely competitive, and processors recognize that numerous merchants will work with a company that offers the lowest rates.
The transparency in distinguishing markup and interchange costs typically yields lower rates overall and most of these plans cost less than a tiered pricing plan. However, beware that a processor can still charge you an unusually high markup. The only difference is that you’ll have an easier time spotting it.
At Loyent, we go against hidden fees and contracts. To learn more about how we can safe you money on processing fee, connect with one of our payment advisors. We’re always happy to answer any questions you may have.