In the world of merchant services, there are two pricing models that reign supreme: tiered pricing and interchange plus pricing. Both have their own advantages and disadvantages, but which one is right for your business?
To help you make the best decision for your company, we’ve put together a detailed comparison of tiered vs. interchange plus pricing.
Tiered PricingWith tiered pricing, your merchant service provider divides credit card transactions into three categories: qualified, mid-qualified, and non-qualified. Each category has its own corresponding fee percentage, which is added on top of the base transaction rate.
The main advantage of tiered pricing is that it’s simple to understand and easy to calculate fees. Because you know the percentage rate for each category of transaction, it’s easy to estimate ocessingyour total processing costs.
The downside of tiered pricing is that you don’t always know which card types will be classified into which categories. For example, a rewards credit card could be classified as a mid-qualified transaction, even though it’s a standard credit card. This mcdarakes it difficult to predict your processing costs and can lead to unexpected fees.
Interchange Plus PricingWith interchange plus pricing, also known as pass-through pricing, you pay the base interchange rate for each credit card processing plus a small fee percentage. This percentage is the same for all transactions, regardless of the card type.
The advantage of interchange plus pricing is that you always know exactly what your processing costs will be. This makes budgeting and forecasting much easier, as you’ll never have any unexpected surprises.
The downside of interchange plus pricing is that it’s slightly more complex than tiered pricing. Because you have to pay the base interchange rate, which varies depending on the card type, it can be difficult to estimate your total processing costs.
Which Pricing Model is Right for Your Business?The right pricing model for your business depends on a number of factors, including your average transaction size, the types of cards you accept, and your business’s budget.
If you’re looking for a simple, easy-to-understand pricing model, tiered pricing may be the right choice for you. However, if you want more transparency and predictability in your processing costs, interchange plus pricing may be the better option.
The best way to decide which pricing model is right for your business is to compare quotes from different merchant service providers. This will give you a better idea of the fees you’ll be charged, and help you find the most competitive rates.
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