Interchange+ Pricing (also known as cost+ pricing or pass through pricing) is a method used by First Direct Financial for all of our merchants, no matter the size of your business. This method provides full transparency, better savings to you, the merchant, and a merchant statement break-down that makes it easier to always know exactly what you are being charged.
The idea behind the Interchange+ pricing model is that all the interchange cost is passed straight through to the merchant at the end of each month, along with First Direct Financial’s minimal fees for servicing the account.
For example: If the card used has an interchange rate of 1.20%, you the merchant would be billed the 1.20% plus First Direct Financial’s fee of 0.20% for servicing the account. In total your cost for that transaction would equal 1.40%.
Simple: Savings and transparency! Many of our competitors use “tiered” pricing, where a base “qualified” rate is quoted and then a “non-qualified” fee is charged for most transactions. Confusing, right?!? In the end this results in much higher fees than needed, which we will explain below in our pricing comparison.
With the Interchange+ pricing model the cost is passed on to you, the merchant, directly with a single markup. This gives you significant savings while while creating a very transparent and simple arrangement with the processor.
Below we will try to explain how all the different pricing models work and show you where the charges originate. By being completely transparent in these examples, you will get better insight visually as to why First Direct Financial chooses Interchange+ Pricing.
Interchange fees and assessments are set by Visa, Mastercard, Discover and the acquiring banks, who then keep their portion and pay the remaining fees to the customer’s bank (issuing bank). The green on the charts will represent Interchange costs. This pricing will be different based on the type of card being accepted (consumer vs. premium) and also how it is entered (card present vs. manually keyed in).
All processors and merchants are bound by the same Interchange fees and assessments, and no processor can offer you a lower cost on these charges. As you review different pricing models below, pay close attention to the blue section on the chart, as this shows the processor’s profit margin and will change based on the pricing method.
Interchange+ Pricing will pass the true interchange and assessment costs through to the merchant, and charge a single markup percentage on top of the processing volume, resulting in the most affordable and transparent pricing method. Originally created for big-box stores, this pricing method is unpopular with processors because it provides the lowest profit margins.
However, at First Direct Financial we provide Interchange+ pricing to all of our merchants no matter the size of your business. We have found that the Interchange+ pricing method helps build and maintain the trust and strong working relationships we desire between us and our amazing customers!
Flat Discount Rate is exactly what it sounds like. A flat percentage that is charged regardless of the type of card that is being utilized. Although easy to understand, the disadvantage here is that you, the merchant, will be paying a much higher discount rate and the margin is kept by the processor elevating your cost. This method has become popular in recent years due to aggregate companies such as Square, PayPal, Stripe, etc.
2.75% is a common Flat Discount Rate, while the average debit card Interchange is anywhere from 0.60% to 1.15%. This means you could be paying up to 2.15% over Interchange on any given debit transaction. (Also note many of these companies now have multiple “Flat Discount Rate” fees depending on card acceptance method.)
The most common pricing method you will see used in the US is tiered pricing (sometimes referred to as bundled or bucket pricing). This pricing method puts each card into one of three categories: Qualified, Mid-Qualified and Non-Qualified. For example, a debit card may fall into the “Qualified” category, a CPS retail credit card may be considered “Mid-Qualified” and a rewards credit card might be “Non-Qualified”.
Merchants will usually see their lower “Qualified” rate and think they are getting a really good deal. However, the reality is that most of the transactions will end up in the “Mid-Qualified” and “Non-Qualified” tiers which, in turn, costs you a lot more. Also, processors have no obligation to tell you which category each card falls into, making it nearly impossible to figure out how much you are actually paying on each transaction.
This is very similar to tiered pricing, where you have “Qualified and “Non-Qualified” fees that are being charged, but in addition to these fees the merchant will also be charged “interchange differential fees” for credit cards. This fee is the cost difference between a consumer card and the “Non-Qualified” card used in a transaction.
Interchange Differential Pricing results in merchants essentially being double billed by paying multiple fees on the same transaction. This practice is not as common in USA, however you will see it in Canada with processors such as TD and Moneris.