Tiered vs. Interchange Plus Part 2

Posted: October 12, 2011 | Updated: February 3, 2021

The Official Merchant Services Blog continues it’s two-part series on Tiered Pricing vs. Interchange Plus. After yesterday’s blog defined what Three-Tier pricing looks like, we now take a closer look at how it falls apart and does not save merchants money. Then we’ll outline Interchange Plus pricing and highlight why Host Merchant Services uses this plan to save its merchants money.

Where the Problems Occur

The three tiers of a typical Tiered Pricing plan are commonly referred to as rate buckets or buckets. And Merchant Service Providers who use tiered pricing structures for their customers utilize a “qualification matrix” that dictates which rate bucket the various interchange categories will qualify to. That means that the fees can shift from month to month as a merchant consistently fails to meet the “standard” transaction of the Qualified bucket. Thus each month they consistently have to pay surcharges from the other two buckets which aren’t adequately displayed or described on their statement.

And because these fees and surcharges from the other two bucket rate tiers are often hidden, that makes it difficult to accurately compare rates and fees from competing providers unless a merchant knows how each provider will be qualifying those categories. Because the categories aren’t directly comparable and because the qualification matrix can shift fees on a merchant from month to month, a common occurrence is a merchant can look at two separate tiered pricing offers from different Merchant Services Providers that look nearly identical because they use the same language for each tier, and yet could be different by hundreds of dollars each month.

Merchants Have to do the Hard Part

This puts the responsibility squarely on the shoulders of the merchant. They need to read the fine print of their statement and understand the subtle differences between the tiers to note when they get shifted to a different tier. This is the most common way Merchant Services Providers make money. The sales pitch when signing the merchant focuses on the low end bucket that saves the customer the most money. But then once the processing starts, buckets shift and the merchant gets a lot more charges than they initially signed up for.

So if your statement shows that you have a lot of mid-qualified or non-qualified surcharges each month, it’s time to consider switching to Interchange Plus, the pricing structure that Merchant Service Providers like Host Merchant Services offers.

The Advantage of Interchange Plus

Interchange Plus pricing is based on the “interchange” tables published by both Visa and MasterCard. At first that may seem like a daunting pricing plan. But it ends up being a lot easier to understand, completely transparent to the merchant, and less expensive than tiered pricing plans. Interchange plus pricing has the merchant pay the exact interchange fee from the tables in addition to a flat markup fee from their Merchant Services Provider. That’s where the name comes from: It’s the Interchange fee Plus the markup fee. This eliminates all of the hidden fees you would find in a tiered pricing plan. And gets rid of surcharges that merchants would incur for transactions that don’t fit the standardized portion of the rate bucket matrix. You pay what you are told you will be paying.

This makes it less popular than tiered pricing plans where Merchant Services Providers can make quite a bit of money off of those surcharges due to the latitude they have in defining their tiered bucket rates. But Interchange Plus makes statements easier to read, customer service easier to provide to merchants, and savings much easier to guarantee. All of those elements are cornerstones of Host Merchant Services. So Interchange Plus is the best fit for the company and for their customers.

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