For businesses that accept credit and debit card payments, choosing the right pricing model for merchant services can significantly impact their bottom line. However, many business owners find themselves paying more than they need to due to an unsuitable rate structure. The two primary pricing models are fixed-rate merchant fees and interchange plus (cost-plus) rates. Understanding the differences between these models—and how your customers’ card mix influences your costs—can unlock savings opportunities. At Comfort Profit Consulting, Inc., we conduct detailed merchant processing audits to help businesses determine if switching to a cost-plus model could lower their payment processing expenses.
What Are Credit Card Interchange Rates?
Interchange rates are fees that merchants pay whenever a customer uses a credit or debit card for payment. These fees are set by the card networks, like Visa and MasterCard, and are typically paid to the issuing bank. They vary based on factors such as the type of card used (e.g., debit, credit, rewards), the transaction amount, and the nature of the merchant’s business.
For example, debit cards generally have lower interchange rates compared to credit cards, especially premium credit cards that offer rewards or cash-back programs. Understanding the breakdown of interchange rates is crucial for choosing the right merchant pricing model.
Fixed Merchant Fee Rates vs. Interchange Plus Rates
When it comes to payment processing, most businesses will choose between a fixed-rate model and an interchange plus (cost-plus) model. Here’s how each of these options works:
- Fixed Merchant Fee Rates
- How It Works: With fixed-rate pricing, the merchant is charged a single, flat fee for each transaction. This fee includes the interchange fee, assessment fees, and the payment processor’s markup.
- Best For: Small businesses or those looking for simplicity and predictability in their payment processing costs. Fixed-rate plans make it easier to predict monthly expenses.
- Pros:
- Easy to understand and simple to budget for
- Predictable costs regardless of the type of card used
- Cons:
- Merchants may pay more on average because they are charged the same rate regardless of the interchange fee associated with different cards.
- Less transparency, as it’s not clear how much of the fee is going to the processor versus the interchange costs.
- Interchange Plus (Cost Plus) Rates
- How It Works: With an interchange plus pricing model, the merchant pays the actual interchange rate for each transaction, plus a fixed markup from the payment processor. The “plus” portion of the fee is the processor’s margin and remains constant, while the interchange fee varies depending on the type of card used.
- Best For: Businesses with a higher volume of transactions or those that process a large number of debit card transactions. It’s also ideal for companies that want more transparency in their payment processing fees.
- Pros:
- More transparency into the actual interchange fees and processor markup
- Potential for lower overall costs, especially for businesses that process a lot of debit transactions or low-fee credit cards
- Cons:
- More complex billing statements, making it harder to predict monthly expenses
- Pricing can fluctuate based on changes in interchange rates and card types used by customers
How Card Mix Affects Your Payment Processing Costs
One of the most important factors to consider when evaluating whether to use a fixed or interchange plus pricing model is your business’s card mix. This refers to the types of cards your customers typically use when making payments.
- Debit Cards: Debit cards often have significantly lower interchange rates than credit cards, which means that businesses processing a high volume of debit card transactions could benefit from an interchange plus model. By paying the lower interchange rates directly, businesses can avoid overpaying through a fixed-rate model.
- Rewards Credit Cards: If many of your customers use premium or rewards credit cards, the interchange fees are likely to be higher. In such cases, the interchange plus model could still be beneficial, as it provides more transparency and allows you to understand exactly what you’re paying for.
- Consumer vs. Corporate Cards: Corporate and business credit cards tend to have higher interchange rates than standard consumer cards. Understanding your customer base and the types of cards they use can help you select a model that aligns with your payment profile.
For many businesses, moving to an interchange plus pricing model can result in significant savings—especially if they process a high volume of low-interchange transactions, such as debit cards. But without a detailed analysis, it’s challenging to determine the potential savings.
Why a Detailed Audit Is Essential
At Comfort Profit Consulting, Inc., we believe that an informed decision is the best decision. That’s why we offer a comprehensive audit of your current payment processing setup. Our detailed audit includes:
- Analysis of Current Transaction Data: We analyze your transaction history to identify the types of cards your customers use most often and the interchange rates applied to those transactions.
- Comparison of Rate Structures: We compare your current fixed-rate structure against an interchange plus model to determine the potential savings.
- Recommendations for Optimization: Based on our analysis, we’ll provide recommendations on whether switching to a cost-plus model makes sense for your business, and we’ll negotiate with payment processors on your behalf to secure the best rates.
Get a Free Audit with Comfort Profit Consulting, Inc.
Are you paying too much for credit card processing? Let Comfort Profit Consulting, Inc. help you find out. Our team of experts will conduct a free, no-obligation audit to determine if switching to an interchange plus model can save you money. With over $100 million in savings found for our clients, we’re committed to helping you optimize your payment processing costs and keep more of your hard-earned revenue. Contact us today to schedule your audit and start saving!
