Trading Ease For Transparency With Interchange-Plus

man-cleaning windowI’ve already talked about tiered-pricing in my previous posts. I’ve talked about the fact that I dislike it as pricing model, and that I prefer a different model instead. That different model is interchange-plus also known as “interchange pass through.”

A quick review of what interchange-plus actually is…

Until recently, only the largest merchants have been able to obtain “Interchange-Plus” Pricing. Otherwise known as “interchange pass through” pricing, Interchange-Plus is the practice of pricing a merchant with a transaction fee and then passing the exact interchange and assessment costs from the Associations to the merchant. – TransactionWorld.net

Instead of narrowing down the interchange rate categories into a few manageable tiers, interchange-plus just passes the Visa and Mastercard interchange rates directly to the consumer. The acquirer then tacks on their markup, and calls it a day. A detailed writeup of what interchange pass through pricing is, can be found on the FeeFighters site.

So, what’s the benefit?

With interchange-plus, you know exactly what Visa and Mastercard are charging you, and you know exactly what your acquirer’s markup is. You don’t have to guess why only a fraction of your transactions are falling under the Qualified Rate tier that you were quoted by your agent, and why most of your other transactions are listed under the more expensive Mid-Qualified and Non-Qualified tiers.

Although tiered-pricing was setup by acquirers to make it easier for us merchants to understand our statements, it offered an incentive for the acquirer as well.

In addition, common practice was for acquirers to mark up and charge significantly more for “downgraded” transactions (those that did not qualify for the best rate applicable). These “downgrades” often comprised the majority of the profit acquirers received on merchants, as business owners focused mainly on the “qualified” or best rate. – TransactionWorld.net

But, with interchange-plus, they don’t have that incentive…

Interchange-Plus does not allow acquirers to increase profit on “downgraded” transactions. – TransactionWorld.net

So, interchange-plus = bad for acquirers, but good for you.

There has been a great deal of debate about whether Interchange-Plus is a purer form of pricing. Interchange-Plus puts the merchant in a situation where they will always pay their acquirer the same and be directly responsible for the costs from the Associations, with no mark-ups. However, this pricing methodology can create merchant confusion as understanding statements with numerous qualification levels is complex and tedious. – TransactionWorld.net

The question to be asking yourself is; are you willing to sacrifice ease for transparency? In a time like this, I’d opt for interchange-plus.

Amad Ebrahimi
Amad has worked in the eCommerce and online marketing world since 2002. He started as an eBay seller, then slowly graduated to building & marketing his own websites and consulting others to do the same. He founded Merchant Maverick out of frustration with all the misinformation and shady tactics that he encountered when trying to find a merchant account for his and his client's businesses. He's the man behind most of the merchant account reviews, and articles posted on MerchantMaverick.com. Have any questions related to credit card processing? Talk to him.
Amad Ebrahimi
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13 Comments

    Christina Aguilar

    Thank you so much for making this so easy to understand! I will be reposting on my facebook to share with my merchants!

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    KRM

    I work in the industry and the problem stems from business owners still stuck in the “low sticker rate” mentality. I try to explain the “effective rate” or total cost of processing but when my cost + model shows them a qualified rate of 1.80, they don’t get that a fraction of their transactions will fall under that and the real savings comes in the form of reducing the non-qualified surcharges that they will end up paying because company xyz offered them a qualified rate that’s actuall BELOW COST! Not understanding that where i can potentially keep their total cost of processing in the 2% range, they will probably end up paying over 3% on average.

    I would suggest business owners negotiate fairly with their merchant services provider based on the interchange plus model.

    Always review your statements!!

    What acquirers pay is public information. Contact me to review your statement and for an explanation of charges.

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    Paul Ringstrom

    Have you ever reviewed United Payment Services? If so, can you send me your review.?

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    Tom DeSimone

    Hi Paul. We have not reviewed United Payment Services yet, so I can’t give you any definitive information. I can tell you that they are an ISO who uses First Data for their processing. I’ve also heard that they have three-year, auto-renewing contract and charge an early termination fee of about $250-400. Overall, I don’t get a great vibe from them. I’d recommend one of our higher rated processors instead. Best of luck!

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    harry mcgugin

    Im in the convenient store business and branded. im getting ready to change to an unbranded gas and need to pick a great processor. currently doing 7 million a year in card transactions who and what do i need? Help!

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    Amad Ebrahimi

    Thank you for the question Harry, I’ll send you an email shortly so we can discuss.

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    Deborah King

    Our company has been getting constant calls from a Merchant Services company called National Exchange Interchange. They insist in speaking to the owner about an important banking matter. From what little they have told us we have been doing business long enough that we have now a lower credit risk due to minimal fraud or charge backs and we now qualify for a lower rates. They will not mail us anything and don’t have a website but they are willing to send someone to our office, of course they aren’t “Selling” us anything. They are very persistent calling us on the phone. Is this real or a scam?

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    Tom DeSimone

    Hi Deborah,

    I’d advise you not to give them any information about your business, and in fact not to speak with them at all. Tell them you’re not interested and that you’d like to be placed on their “Do Not Call List.” If your business profile has indeed changed and you do qualify for better rates, your current processor can lower your rates. Just ask for a rate reassessment. If you’re interested in switching processors, I’d suggest any of our highest rate providers, most of which use interchange-plus as their go-to pricing model. I’ve never heard of National Exchange Interchange, and can’t find anything about them. I wouldn’t trust them.

    Good luck!
    Tom

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    Chris Smith

    Hi,

    I am hoping you can clarify something for me about Eliot Management. I signed a contract; however at the time did not have my business account open. They basically said to just send it in when I got it open. Unfortunately in the hurry of trying to get everything done for my business, I didn’t properly check into them. I have two questions. One since I haven’t given them my account information, but have signed a contract, is it possible for me to cancel? I’m sure they will tell me I have to pay the fee, but not sure how they could enforce that without my account information. Second, above you talk about interchange plus where the fee charged by Visa (often 1.50%) is passed on to the merchant. The rates they gave me: 1.69% standard rate, do you know if that includes the charged from Visa or is that on top of. Thanks for your help.

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    Tom DeSimone

    Hi Chris,

    If you have not formally accepted the service or run any transactions, there is still a chance you have legal ground to cancel without paying the fee. You’d have to check your contract. Usually information about the initiation of the term will be in a “Term/Termination” section. If you try to cancel and they want to collect the fee, bring the BBB into it immediately. This doesn’t always work, but sometimes is enough to sway the situation in your favor.

    Even if you haven’t linked your account, they can send the unpaid fee to collections which may impact your credit.

    For the interchange fee, processors can be very tricky about this. Interchange-plus rates will usually not exceed 0.4% (more often around 0.25%). The 1.69% “standard” or “qualified” rate quote is part of a tiered system. It will only apply to certain transactions, perhaps only a small amount of your overall volume. Interchange rates are included in this fee. But since interchange rates average at 1.79%, you can see that it’s impossible for them to really only charge you 1.69% most of the time, because they would be losing money.

    My advice: Stay FAR away from Eliot Management, and try to get an interchange-plus plan with no monthly minimum. Let us know if you need more help!

    Good luck,
    Tom

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    Kate Marshall

    Hi,
    We are launching up online store and searching for merchant service.
    Without physical store, only online card processing and occasional swipes at conventions are expected.

    Have you heard about Uswipe- http://www.uswipe.com? They were offering special no monthly fees for wholesale pricing (0.20% plus pass through) during convention and wondering if they are reliable company. Any of your recommendations and thoughts would be really appreciated. Thanks!

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    Tom DeSimone

    Hi Kate,

    Unfortunately a bunch of the links on the uSwipe site are dead, including the pricing page and features page, so I’m not able to look over their info. A 0.20% markup with no monthly fee would be a tremendously good deal, especially for a mobile processing app, which makes me very suspicious. (You know what they say about things that seem too good to be true…) It wouldn’t be possible for uSwipe to make money on your account with that kind of pricing, so you should expect other hidden fees to be involved.

    Since you will only need to swipe on the go occasionally, you should focus on finding a good provider for e-commerce. Any good provider will include free access to a virtual terminal (so you can take orders over the phone, entered into any internet-connected computer). Most processors will also be glad to set you up for mobile processing at little added cost if you’re already doing business with them for e-commerce. (You might have to buy the card reader in some cases.) Or you could just get the mobile processing account from a separate company like Flint or PayPal Here.

    One way or another, I don’t think uSwipe is right for you. I’d probably recommend CDGcommerce. Ten bucks per month, access to free in-house payment gateway and virtual terminal, 0.30% plus $0.15 per transaction, plus I’m pretty sure they’ll give you a free mobile reader. Check out the review!

    Good luck,
    Tom

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    Jacob Slaffey

    I am considering joining this company as a sales rep.

    How are they rated

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