Merchants are the big winners on the interchange cost plus pricing model because it provides price transparency. But what exactly IS interchange cost plus?
Remember we have defined interchange and the basic tiered pricing model that most small to mid size businesses have been placed on for years by their merchant account providers. Keep in mind also, that until just a few years ago - VISA and MasterCard did not publish interchange rates for merchants to see.
With the wholesale cost of each and every type of transaction (some 150 to 200) now public information, as well as the assessments added on by bankcard (VISA and MasterCard) - all businesses can expect or demand - a cost plus pricing option.
Interchange plus or "pass through pricing" has three components -
- Interchange - is the wholesale cost of a transaction. These rates change several times a year but are always published on both the VISA and MasterCard websites. In addition XBS always provides the most up to date pricing on it's site for the most common interchange categories.
- Assessments - the very small percentage of the transaction that goes directly to VISA and Mastercard. Only .000925 for VISA and .00095 for MC - about 9 cents per $100. This pricing is fixed for ALL merchants in the USA.
- Delivery and Risk - above interchange and assessments - this is the flat rate charged by your merchant account provider for all costs and services including initial setup, ongoing maintenance and communications, the latest technology, fraud protection, risk recording, fund transfer, underwriting, etc.
Now the merchant can see the exact cost of each and every transaction and knows exactly what is being paid the provider for delivery and risk - a cost that never changes. The wholesale cost or interchange rate, which often goes up just incrementally with a downgrade - depending on transaction type - is passed on directly to the merchant and EACH transaction is processed at the lowest possible rate/cost.
In your tiered model - transaction costs often "swing" a little more wildly when downgraded depending on what rates your provider gave you for mid and non qualified transactions. While processing methods and strategies can work to reduce downgrades in tiered pricing - it will never reduce costs to interchange cost plus levels. Food for thought.