subject: Interchange Pass Through Pricing [print this page] Cost plus or interchange pricing is a pricing
method that was generally reserved for merchants who processed a very large
volume of credit card transactions. Its transparency allows you to see exactly
where your processing dollars are going.
Before I go into what interchange pricing is, I
should first define interchange. An easy definition is the amount of a sale
that goes back to the credit card issuing bank.
Interchange covers the cost to convert a charge on a cardholders card to a
cash deposit at the merchant business checking account, including cost factors
like credit, billing services, fraud risk and, profit, etc
Interchange plus pricing works much like it sounds. Your transactions are passed
through at interchange/cost and your processor adds a fixed markup in the form of
a basis point and transaction fee.
Basis Points
A basis point is 1/100th of a percentage point.
For example:
1%= 100 basis points
2 basis points= 0.02%
Transaction Fee
A transaction fee is also referred to as an authorization
fee and it's charged each time a merchant swipes, keys or does an authorization.
Until recently three tier pricing structures
dominated the processing landscape. Fierce market competition
and unfavorable economic conditions now make it easy for virtually any merchant to
qualify for this type of pricing method.
Three tier pricing consists of a qualified, mid qualified
and non qualified rate.
The reason you want to avoid this pricing method is
that many of the transactions that were once considered qualified now bucket into
mid and non qualified. The popularity of rewards cards havent helped this either.
More merchants are using rewards cards to earn cash, gas points, airline miles etc.
Reward card transactions will automatically downgrade to mid or non qualified.
Unfortunately, most merchants only pay attention to the qualified rate which has
allowed merchant service providers to build expensive margins into their mid and
non qualified rates.
How do you get cost plus pricing? Call your current merchant services provider and insist on a detailed interchange rate quote. The internet has made it is easy for merchants to find information and processors who offer this type of rate structure.
Revolution Payment Systems has been providing this type of rate structure to clients for years. Call us one of our specialists and let us show you the benefits of the pricing method.
