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The 3 best price structures for credit card processing | Interchange Plus

1. ERR Pricing: One rate
2. Tiered: Two to four rates
3. Interchange Plus: Every rate

The third price structure for credit card processing is called Interchange Plus Pricing. Interchange Plus pricing gets its name based on the fact that the rate charged for the transaction comes straight from the Interchange table “plus” a surcharge amount.

As a merchant business with a interchange plus pricing structure, you will be charged the Interchange Table rate that the transaction qualified at plus a surcharge amount. The surcharge amount is negotiated with your merchant service provider. We will use 50 basis points or 0.50% for illustrative purposes.

(The Interchange Table is the rate table set up by Visa, MasterCard, Discover and American Express to facilitate the acceptance of plastic as a form of payment. There are currently over 180 different interchange rates that can apply. The rate is determined by how the card is transacted – swiped vs. keyed and the type of card that is transacted – debit card, check card, rewards card, corporate card, international card) More information on interchange fees

The interchange plus pricing structure for credit card processing is most advantageous for merchants that are transacting large volumes.

What pricing structure is right for my business?

The 3 best price structures for credit card processing | Tiered Pricing

1. ERR Pricing: One rate
2. Tiered: Two to four rates
3. Interchange Plus: Every rate

The second price structure for credit card processing is called Tiered Pricing. Tiered pricing gets its name from the fact that there are multiple tiers set up to determine the price associated with the transaction.

Typically there are 2 to 4 tiers that are set depending on the type of business. Retail merchants usually have 3 to 4 tiers and internet business tend to have only 2. For this example with will look at are retail business.

The 4 tiers set up most often for retail business are as follows:

• Debit
• Qualified
• Mid-Qualified
• Non-Qualified

Each tier’s rate is negotiated with your merchant service provider. We will use the following for illustrative purposes.

• Debit: 1.10%
• Qualified: 1.69%
• Mid-Qualified: 2.29%
• Non-Qualified: 2.99%

Each tier’s qualification parameters:

• Debit: Debit cards where the PIN is entered by the customer at check out
• Qualified: Check cards that are swiped through the terminal
• Mid-Qualified: Check cards that are keyed in to the terminal, Rewards cards that are swiped or keyed into the terminal
• Non-Qualified: Corporate or international cards swiped or keyed

As a merchant business with a tiered pricing structure illustrated above, you will be charged the tier rate associated with the transaction regardless of the interchange table rate.

(The Interchange Table is the rate table set up by Visa, MasterCard, Discover and American Express to facilitate the acceptance of plastic as a form of payment. There are currently over 180 different interchange rates that can apply. The rate is determined by how the card is transacted – swiped vs. keyed and the type of card that is transacted – debit card, check card, rewards card, corporate card, international card) More information on interchange fees

The tiered pricing structure for credit card processing is most advantageous for merchants that are transacting medium volumes.

What pricing structure is right for my business?

The 3 best price structures for credit card processing | ERR Pricing

1. ERR Pricing: One rate
2. Tiered: Two to five rates
3. Interchange Plus: Every rate

The first price structure for credit card processing is called ERR (Enhanced Rate Recovery) Pricing. ERR pricing is often referred to as the simplest pricing structure as there is only one rate that is associated with the account.

This ERR rate is negotiated with your merchant service provider. We will use 1.69% as the ERR rate for illustrative purposes.

As a merchant business with an ERR rate of 1.69% for your merchant account, you will be charged 1.69% for any transaction that qualifies on The Interchange Table at 1.69% or below.

(The Interchange Table is the rate table set up by Visa, MasterCard, Discover and American Express to facilitate the acceptance of plastic as a form of payment. There are currently over 180 different interchange rates that can apply. The rate is determined by how the card is transacted – swiped vs. keyed and the type of card that is transacted – debit card, check card, rewards card, corporate card, international card) More information on interchange fees

For transactions that qualify above 1.69% on the interchange table you will be charged that rate, in addition to a surcharge determined by your merchant service provider.

For our example transactions below we will use 0.50% as the surcharge.

The ERR pricing structure for credit card processing is most advantageous for merchants that are transacting lower volumes.

What pricing structure is right for my business?

What are credit card interchange fees?

This is a very good question and is important to understand if your business accepts credit cards or would like to. When thinking about interchange fees, it helps to think of it as a toll way.

The interchange fee is paid by you (the merchant) to the card issuing bank. The issuing bank collects the fee to recoup the cost associated with enabling consumers with the ability to pay with a piece of plastic.

Another item to be aware of is the assessment fee. The assessment fee is charged directly by Visa and MasterCard to cover their operating costs. The Visa assessment fee is currently .0925% and the MasterCard assessment fee is currently .0950%. Both Visa and MasterCard regularity adjust these fees and typically do so in April and October. The assessment fee is always applied as a percentage the total purchase price of the product or service sold.

What are the current credit card interchange fees?
There are currently 315 different levels of interchange fees. The reason for so many different levels and fees is due to a few factors.

1. The industry of the merchant. The industry of the merchant will be one of the initial factors considered when the interchange fee is applied. Some of the industry specifications include supermarkets, restaurants, hotels, passenger transport, etc.
2. The means in which the card is transacted. The means in which the card is transacted refers to whether the card is present at the time of the transaction and swiped through a terminal or the card is keyed into the terminal for processing.
3. The type of card that is transacted. The type of card that is transacted refers to the type a card presented by the customer. Typical card types include debit cards, check cards, reward cards, international cards and corporate cards.

What are some ways in which to reduce the interchange fees that are charged?

1. Swipe the card through a terminal rather than key the card data into the terminal.
2. Use an address verification service (AVS) when transactions are keyed into the terminal. This service helps to reduce fraud.
3. Run your batch process daily.

Through adhering to these three scenarios you give yourself the best chance at qualifying for the lowest interchange fees. The goal is to avoid being downgraded. You will downgrade (pay a higher interchange fee) when criteria for the lower fee are not met. Every time the transaction moves further away from the required criteria, more risk is associated with the transaction and it will cost more to transact.

Interchange fees for a retail purchase of $100

I hope this article is helps you and your business understand credit card interchange fees. If you would like additional guidance in avoiding mistakes when opening a merchant account please download our whitepaper.