Rate Plus. (old school, yet still used pricing) The client is given a rate, ex. 1.99% .20 cents per swipe. This base rate is only for some transactions. The rest are priced with a “surcharge” which can add an additional .99 –
1.59%+ on top of cost. This model is used only for card present transactions.
Pros: Absolutely none, it just sounds cheap.
Cons: This is a very deceptive pricing model, you never know what your cost will be.
Three or Four Tier
The client is given three rates. Qualified, Mid-Qualified, and Non-Qualified. Seems simple, yet the way the system is designed is to drive as many transactions to the Non-Qualified bucket as possible, which is the highest!
Cons: This is very deceptive in its application as in reality you will always pay the highest tier
IC + Margin
The client is told exactly how much they will be charged on every transaction. There are still companies that will “pad” interchange costs (WAAVE never does), so even though you can clearly see the “cost” of each card, it may still be wrong. That said, you will see each card type that you process and can easily do the research to see.
Pros: This works well for card present transactions, it is transparent and fair if the IC is not padded.
Cons: In High Compliance transactions you must make sure that the margin includes the High-Risk BIN cost otherwise you will see up to 1% in additional costs and if they are not using a High-Risk BIN the relationship is not transparent with the Banks and you could end up on the MATCH list.
Flat Rate Pricing (Interchange and Margin together in one place) It’s all just baked in. You pay one amount and that’s it. The bank, the associations, and the processor make a profit on anything above the cost of each card. Some processors will actually have two rates (Card Present/Card Not Present).
Pros: You know exactly what you will pay allowing you to plan your pricing structure and costs every month without hurdles, this is the best option for E-Commerce.
Cons: When someone pays with a debit card your service provider makes more money (but sometimes they cover excessive costs for you) In reality popular pre-paid cards are as expensive as reward cards so it is really not a huge issue anymore.
If the Flat Rate excludes any of the non-negotiable costs, the model becomes deceiving and more expensive to you.
Alternative Pricing (True Cash Discount, Surcharging, etc.)
This pricing model is the fastest-growing trend in payments today. In these programs, you are actually passing along the costs to your customers. These programs have many State and card brand rules, so it’s important to know what they are.
Pros: Your processing cost can be as low as 1.5% which is great!
Cons: This is only recommended for Card Present transactions, it results in a higher cost for your buyers, it can be very complicated to configure, and it is not available in all states.