Tiered Pricing vs. Interchange Plus

Posted: October 11, 2011 | Updated: October 11, 2011

Today The Official Merchant Services Blog is going to delve into the murky world of hidden fees and tiered pricing plans. This is the first in a two-part series and it focuses on Tiered Pricing. Host Merchant Services offers an Interchange Plus pricing plan. The company offers this plan because of its transparency and the savings it can provide when compared to the far more popular tiered pricing plans. To get a better grasp of why Interchange Plus works so good for Host Merchant Services, it helps to understand what is happening with a tiered pricing plan and how that kind of plan works.

Hidden Fees From Tiered Pricing Plans Unfair to Merchants

Tiered credit card pricing can be unfair to small business owners. Many credit card payment processors calculate merchant costs using a tiered pricing structure. These tiered pricing levels increase the costs for merchants by suggesting they are paying one rate, but hiding other fees into the statements and in the end the merchant is paying a higher percentage. The answer to this problem is Interchange plus pricing.

Host Merchant Services uses Interchange Plus. And this pricing structure is the most transparent and easiest to read system in terms of the statement and the way fees are charged. The merchant sees everything they are being charged for in their statement. Nothing is hidden, and there are no shenanigans employed in getting merchants to think they are saving with a low rate that ends up being made up for in a series of other fees snuck into each statement.

Three tier pricing is currently one of the most popular pricing structures used in the payment processing industry. Here’s a table that defines the three tiers:

It’s all About The Surcharges

Tiered pricing plans start with the qualified rate. This is the standard fee a merchant is charged when they accept and process a credit card or debit card transaction. This is also the lowest rate the merchant can incur. Transactions that don’t qualify for the standard set forth at that rate get hit with various surcharges. And its these surcharges where the processor starts to make a lot of profit. And its these surcharges which are usually the hidden fees that don’t show up on a merchant’s statement.

There are over 500 different interchange categories between the major credit card companies and each category has its own charge that is comprised of a percentage and often a per transaction fee. The three tier pricing structure merges all of these charges into three buckets. And a Merchant Services Provider has its own discretion, to an extent, as to which bucket or tier they place these categories.

These underlying interchange categories are not disclosed on a tiered pricing plan so there’s no way of knowing into which bucket each category is being charged. This is where hidden fees crop up.


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