Merchant Account Rates & Pricing - Interchange Plus, Tier Based & Flat Rate Comparison
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- Опубліковано 11 чер 2024
- #merchantaccountrates #merchantaccountpricing #interchangevsflatrates
Merchant account rates are difficult to understand so in this video I’m going to compare 3 merchant account pricing models: interchange plus pricing, tier based pricing and flat rate pricing from the payment aggregator companies like PayPal, Stripe and Square.
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• Merchant Account Rates...
Merchant account pricing is often an apples to oranges comparison.
So we’re gonna talk about interchange rates and pricing, Tier based pricing, flat rates, and how these compare to one another.
So if you’ve ever wondered which rate structure is best, stick around because we’ll get into it here and at the end of the video I’ll give you the end-all be-all SINGLE comparison factor that you can use to compare ANY two merchant services providers to each other based on rates and price.
ROLL INTRO
So rates and price… Everyone wants to know and thus, it’s one of the most common questions I get asked.
And you’re probably considering your options and wondering for example… : “Why does Square have a fixed rate, but then all the merchant account companies have this thing called interchange plus?
Again I admit that it can be confusing to compare them.
So to start, let me remind you about interchange...
Interchange is a small fee paid by a merchant's bank (acquirer) to a cardholder's bank (issuer) to compensate the issuer for the value and benefits that merchants receive when they accept electronic payments. It enables banks that issue electronic payments to deliver tremendous value to merchants, governments and consumers.
So that’s the official definition...but in short, You can think of it as a base cost for all credit and debit card transactions.
A single interchange rate plus a transaction fee in most cases, is paid every time a transaction takes place and that goes for all 4 major card brands here: Visa, Mastercard, Discover and AMEX.
So, with that in mind let’s look at the first pricing model:
Interchange Plus
This is also known as “cost plus” pricing model, and is commonplace in the merchant account industry. It’s often the go-to pricing model for processors to offer to business owners.
Here’s how it works:
The merchant account provider simply passes through the network cost, which is interchange, and then adds a processor specific markup to cover other costs associated with maintaining that merchant account, such as administration fees, software and technology license fees, customer service, fraud and other risk factors just to name a few.
There are 2 main variables within interchange plus pricing and they are:
The % margin above interchange along with the per item fee above interchange
And both of these things are applied every time a transaction takes place.
Since there’s 100’s of interchange categories each with potentially different rates and transaction fees, this pricing model ensures a fixed margin of cost to you, the business owner, while giving the benefit of having the actual interchange costs passed through to their account.
Interchange plus is often regarded by industry payment professionals, as the “true” and “Transparent” rate structure when it comes to merchant account pricing. More on that at the end of the video…
Which pricing structure do you think is "transparent"? Interchange Plus pricing or Tier/Flat Rate? Let me know in the comments below. Thanks for watching! -Brian
BancardSales hi sir! I hope you can still see my comment. I am planning to sell online in usa and I’m currently residing at the Philippines. Which payment getaway would you suggest for me to use. Subscribed 😃
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Thanks for your great videos! Cheers from Brazil!
Great video. Very informative. I'm currently trying to decide between Interchange+ or Fixed rate. I am a new small quick service business so IDK where how much my sales will be and my tickets I'm guessing will be under $15. How would you go about deciding which merchant account would be best?
THANK YOU BRIAN THIS REALLY HELPED ME OUT. I AM JUST STARTING A FOOD TRUCK BUSINESS AND LOOKING TO PURCHASE A FOOD TRUCK AND MY VOLUME IS LOW BEING STATIONARY SO I WAS CONSIDERING DOING A FLAT RATE WITH CLOVER BUT YOU REALLY HELPED ME TO UNDERSTAND MORE ONCE AGAIN THANK YOU SO MUCH!!!!
Hey Alice, Thanks for watching and glad to be of service. FYI, we help set up Clover equipment and manage merchant accounts (better rates/pricing than the flat rate programs on the Clover website, btw) so if you'd like to talk about that just use this link to schedule a call with me: www.bancardsales.com/call/brian
Thank you so much for such a great video explaining the differences.
I have a small grocery store, & cc cards are mainly swiped.I have been using merchant processing company for 17 yrs of my business, but I am still not able to figure out all the charges... they always have a way to get your money. I am using tsys merchant services now, but their pci compliance charges are atrocious... then you have to keep up with every 3 months... so I was thinking about switching to square although per transaction rate is higher... at least I don’t have to worry about these unknown charges... what do you suggest? I appreciate your help. Thank you again.
Swetha, is your business located in the USA? If so, reach out to me and we'll discuss your options: Www.bancardsales.com/call
Which pricing structure do I think is "potentially the most transparent"? IMHO, interchange Plus is much easier for anyone to understand, providing greater simplicity for statement analysis. It also offers less opportunity for creating hidden fees or adding additional unseen built-in costs.🦓
Thanks for watching and commenting Brand Smart! Have a great day! -Brian
This is a great video! I was just approved for a business line of credit from 1st Merchant. But this being said they will charge 2.99% for each transaction. YIKES!! I am a new business and trying to keep my cost low. I am not sure what to do. But this video has been very helpful. I want to business line of credit but in order for me to receive this amount I have to open an account with them.
Hi Kay! You know, TBH a 2.99% per transaction flat rate might be better than you think. The video says it pretty well... if you are just starting out and are doing under $2,000 per month in volume, honestly it's the way to go. Where you want to go with an interchange plus processor is after you hit that $2,000 mark and grow. That said, it is very common for folks to go with their banks for processing (especially at first), but know that most of the time if you do want to go elsewhere , you have the right to do so AND you won't even have to switch banks! Hope that helps! And BTW, I love this video and send it to many of my clients. I'm heartened to see something so helpful and informative out there.
Duuuuuude, helpful AF! Thank you so much!
You're welcome! Glad it was helpful! Thanks for watching.
Awesome video!
Thanks Joy and thanks for watching !
I believe that despite the interchange plus model being more transparent in terms of knowing how much the merchant platform provider is making the flat rate model is more convenient. In the end the costs will somehow get transferred to the end user and with that being said if the customers know exactly what they are paying, meaning they can forecast their costs, then they will be able to price their product accordingly and absorb the cost of the merchant platform. Everything truly depends on the business life cycle but if you have a product with decent elasticity you should be able to increase the price to cover the costs, if your product has high elasticity then you might not want to use a flat rate pricing provider.
Just learned of interchange and scheme charges lately. As you say, the only way to compare is to generate the putative effective rates for both merchant and aggregate providers on the same list of monthly transactions. One point from experience: while aggregators like PayPal are always forthcoming on their total rates, merchant account providers are usually only explicit on things like value rate, transaction fee, merchant a/c charge and payment security charge. No figures are offered for interchange rates or card scheme charge or many other variables. A person new to e-payments might just compare the value rate and transaction fee with those of aggregators and think yhat going with the merchant provider was a no brainer. Not so...
Hey Dan, you always need to get an apples to apples comparison with all the rates and that's why I teach using effective rates as the main "end all" comparison factor.
yes there's a lot that goes into the pricing with interchange and that's also why I teach it here for the public to view and learn. There's a learning curve with everything (some steeper than others of course) but nonetheless, if it's new to someone they have to learn the basics. Thanks for watching!
Are you a business owner? Or are you in the payments industry?
I am setting up a freelance copywriting business, but how go I connect to connect to the credit card on an invoice. Which is better for me? Merchant or an Aggregated account? Thanks. I like the way you explain thinks slowly.
Hi Lalita! There are a couple of ways to go about this that I have seen in the field. One way is invoicing people directly off of Quickbooks if you are using it, and the other way is to go through your credit card processor who usually has the ability to arrange for clickable invoicing.
Thank you Brian,
You're welcome, Dennis! Thanks for watching!
New to this. The rate I just agreed to is IC+0.10BPS and $0.05 cents per transaction credit and debit. I want to work this into a cash discount. How much of a percentage should I average to take off for non card. I also want to know thoughts on keying card or cards on file, since these are at a higher rate should I even offer?
Kyle, if you going to surcharge or add a fee to your sales with the merchant account you need to do it properly.
Feel free to grab a time here with me to discuss it. Complimentary. Www.bancardsales.com/call/Brian
What do you think about Stax by Fattmerchant? Are they transparent with their fees? Not sure if they are interchange or tiered.
Hi just want to know one more thing that is this the fees of around 2.0% which is charged by payment gateway for a credit card payment. So now will the mstercard and visa card also take their online trasaction fees which can obviously make it around total of 4% charge.
Gateway fees are a different beast and you are correct in noting that they do charge on top of what you have arranged with your interchange plus payment processor. When it comes to gateways though it's not usually a % like you describe TBH. Instead, it's a flat rate monthly fee of like $25 and they charge $.10 per transaction on average. So a really good and honest processor will first, try to use a gateway that has no fees if at all possible which will depend on your setup. Second, if the gateway fees are unavoidable then we build the cost into our processing and basically give you lower rates to offset the cost. That way we get your business, you don't have to pay for the gateway really and you have a company you can talk to and trust who you have built a relationship with that is going to advise you as you grow. That said, the bottom line is if your effective rate (what you pay per month divided by what you brought in) is at 4%, you are paying WAY TOO MUCH. Now bear in mind that your effective rate will fluctuate from month to month because you don't know how many corporate cards vs debit cards etc. you are going to get so the interchange will always vary based on the cards your customers use. Does that make sense? But that said if you are at 4% you... really need to reevaluate your processing my friend. I hope that helps!
The answer is always - depends on the business and their needs
We offer customized solutions so, yea you'll hear me say that a lot. Better to get a solution you'll use than to buy something that is not ideally suited for you, right?
Hi Brand .first thanks for sharing that information ..very helpful . I am open a new business were all my customers will use their personal credit cards to pay . Avearge bill is between $2800 to $4000 ... total customers per month are 30 ....big question is all those trancsaction will be generated overseas ...most of them from Latam and tbey will be paying trougth my website ...which sistem will you recomend ?? Thanks
Where are you and your business geographically located?
What country are you in? And what country is your business located in?
Which one is the most transparent? If you know how to read the structure, it's Interchange. Which one is the best for a specific business? That all comes down to multiple variables as outlined in your video, e.g., Card Type Mix ( Debit versus Credit), Credit card Mix ( Retail vs. Rewards vs. Corporate), method of accepting ( card Present vs. CnP). Integration ( its value vs. cost ). For the average business owner to know which is best considering all the factors is almost impossible to figure out on their own,
What I find disturbing are some of the non-transparent tactics used in the industry today. For instance, Upserve uses an Interchange plus pricing with an off statement monthly fee debited directly from the merchant's bank account and not included on the statement. Also, in general, I view Payfac pricing as another way the industry is taking advantage of the merchants. They signup with these software providers that lock them into proprietary processing, which leads to non-competitive pricing.
Anyhow, enjoyed your video. Thank you
Thanks for the comments Tom. As for the non-transparent tactics used, I suppose there's an additional argument there that I just barely touched on in the video.
One argument could be that if the merchant knows that there is an off-statement fee coming out of their account then it's completely transparent. They know about it, and agree to it, so everyone is on the same page.
If you're comparing total merchant account costs (from one provider to the next, for example), then you would need to be aware of that fee so you're doing an apples to apples comparison. That's where it might become a "grey" area.
Thanks again for watching. ~Brian
p.s. are you a business owner? or are you in the payments business?
Very informative, is there any training courses that you provide to newbies?
E. David, what sort of information would you like to learn?
Are you selling online? Starting a retail business? Please elaborate and there might be other videos I have that can help you. Lmk. -Brian.
Interchange plus is the only true transparent pricing model for the merchant. By the way do you do private consulting?
Yes, payment and software consulting is part of our business offerings. If you'd like to talk, feel free to use this link to schedule a call: www.bancardsales.com/call/brian
They're just different. Regardless of transparency, effective rate will vary depending on business type.
Exactly. Thanks for watching! -Brian
I need merchant for my e-commerce store based on shopify
Did u find one? Are u non resident?
Only pricing worth a damn is Interchange + 0% + 10 or 15 cents a transaction. That's it, the rest of the modules are all garbage and trash.