Tag Archives: Interchange

Industry Terms: Interchange

Interchange

Interchange is a term used in the payment card industry to describe a fee paid between banks for the acceptance of card based transactions. Usually it is a fee that a merchant’s bank (the “acquiring bank”) pays a customer’s bank (the “issuing bank”).

In a credit card or debit card transaction, the card-issuing bank in a payment transaction deducts the interchange fee from the amount it pays the acquiring bank that handles a credit or debit card transaction for a merchant. The acquiring bank then pays the merchant the amount of the transaction minus both the interchange fee and an additional, usually smaller fee for the acquiring bank or ISO, which is often referred to as a discount rate, an add-on rate, or passthru.

For cash withdrawal transactions at ATMs, however, the fees are paid by the card-issuing bank to the acquiring bank (for the maintenance of the machine).

These fees are set by the credit card networks, and are the largest component of the various fees that most merchants pay for the privilege of accepting credit cards. Visa, Mastercard, and Discover are each known as card associations. And each card association has their own rate sheets known as Interchange Reimbursement Fees. These fees make up the majority of what you pay to your processor and they vary greatly depending on the card type accepted.

Download Visa’s Interchange Fees Here

Download MasterCard’s Interchange Fees Here

Interchange Plus Pricing

Interchange Plus pricing means that the acquirer charges you a variable MSC consisting of the cost price plus a fixed markup. Interchange Plus Pricing is exclusively how we quote at Host Merchant Services. Interchange Plus, also known as Cost Plus, pricing gives the customer a fixed rate over published Interchange Fees. This pricing format is normally quoted as a discount rate (percentage fee) along with a per item or authorization fee. The great thing about Interchange Plus pricing is that you always know exactly what you are paying to your processor to services your account. Think of Interchange, and all the associated fees, as an unavoidable cost. No matter who you process with, you have to pay these fees. They may be labeled differently, or wrapped up in a confusing pricing tier, but one way or the other, you are paying Interchange fees. By understanding the markup you pay over Interchange, you know exactly what you pay to your processor and exactly what is going to the card associations. That allows you to make a decision on whether or not the markup seems reasonable for the service you get and choose your processing partner accordingly.

Here’s a small graphic explaining the basics of how Interchange Plus works:

Visa, MasterCard Add New Fees

The Official Merchant Services Blog has just learned that Visa and MasterCard are planning to add new processing fees in the coming months — fees specifically targeted toward Debit Card Swipe transactions. These new fees, which we are consolidating and dubbing as “Card Association Fees” are going to complicate the pricing process for Merchant Services Providers in 2012.

Tricky Fees

Visa, MasterCard and Discover are the main players in the “card associations” and they are the driving force behind interchange and interchange rates. These associations periodically review and modify their interchange rate structures and billing strategies. What this means is that normally each year the big credit card companies get together and increase interchange rates. But after the Durbin Amendment went into effect in 2011, the credit card associations are taking pause and tweaking their own strategy. So effective April 2012 there are new Card Association Fees being implemented and these fees are not interchange fees. These are brand new processing fees created by the associations.

Visa’s New Fees

Visa has announced that beginning April 1, 2012, it will be introducing a trio of new fees:

A Transaction Integrity Fee
Revisions to its Network Acquirer Processing Fee
A Fixed Acquirer Network Fee (FANF)

Transaction Integrity Fee: Visa’s Transaction Integrity Fee is a new $0.10 fee that will apply to U.S. domestic regulated and non-regulated purchase transactions made with a Visa Debit card or Visa Prepaid card that fail or do not request Custom Payment Service (CPS) qualification. The CPS rates are Visa’s best rates and apply to both regulated and non-regulated transactions. This new fee can be viewed as a definite response from Visa to the Durbin Amendment’s interchange rate cap and finance reform/regulatory changes. This is part of the ninja-style set of moves The Official Merchant Services Blog has cited would be the reaction to the Durbin Amendment.

Network Acquirer Processing Fee: The Network Acquirer Processing Fee on Visa-branded signature debit will be reduced — going from $0.0195 per authorization to $0.0155 per authorization. The fee for credit card authorization will remain $0.0195 per authorization.

Fixed Acquirer Network Fee: FANF will apply to the acceptance of all Visa-branded products and is based on both the size and the number of merchant locations. The FANF fee will be based on volume reported in July 2012. Visa will require U.S. acquirers to provide new merchant location reporting for the tracking of this fee. The new reporting requirements will include a monthly breakdown of acquired merchants, number of merchant locations, and merchant sales volume by merchant Taxpayer ID. For Card Present merchants, with the exception of Fast Food Restaurants, a merchant Taxpayer ID with physical locations will be assessed FANF on a per-location rate basis. For example, Card Present Merchants with one to three locations will see a pass through per location per month fee of $2. Price per location per month will increase according to the number of locations – upwards of $65 month for merchants exceeding 4000 locations. Card Present High Volume MCC Merchants with one to three locations will see a pass through per location per month fee of $2.90. Price per location per month will increase according to location — upwards of $85 month for merchants exceeding 4000 locations. Customer Not Present, merchant aggregators and merchants primarily operating as Fast Food Restaurants (MCC 5814) will be assessed based on gross merchant sales volume originating from any Visa-branded card. Merchants that fall into this category with monthly gross sales volume ranging from less than $50 a month on the low end will see a $2 a month fee- to merchants with gross sales exceeding $400 million at a $40,000 a month fee. There are some 18 tiers, with a merchant falling into a volume tier of $8,000 to $39,999 a month seeing a new $15 per month FANF fee.

Visa will also effectively waive the FANF for eligible Charitable and Social Service Organizations (MCC 8398). The FANF waiver for Charitable and Social Service Organizations will be provided through a quarterly rebate process that Visa has indicated will be defined at a later date.

Continue Reading – Visa, MasterCard Add New Fees, Part 2

Finding Quality Merchant Services [2023 Update]

Today The Official Merchant Services Blog is playing a bit of catch up. The story we’re going to highlight and discuss is almost three weeks old. It was intended to run earlier, but technical difficulties with the blog’s production kept it from appearing until now. However, we feel the story is still worth some attention due to the issue it highlights about the payment processing industry.

The story comes to us from a Chicago, IL section of the Better Business Bureau (BBB). This article from the BBB says that the organization has seen a 42% rise in complaints against credit card processing services. The article, which originally was posted by the BBB on December 15 found that complaints were up for the 12 month period in 2011 compared to the previous 12 months. The breakdown was specifically 110 complaints in the recent 12 month period versus 77 complaints in the period prior.

Not Just In Chicago

The complaints aren’t just lodged in Chicago. This article from Fox40.com details similar complaints in Sacramento, CA. The article states: “The Better Business Bureau is warning businesses to beware of sales pitches by credit card processors that don’t reveal key details that could end up costing business owners more than they bargained for.”

And it quotes Caitlin Peterson of the Better Business Bureau of Northern California as saying “We’ve had over 1,700 complaints this year against the merchant processing business.”

What the Problem Is ?

From reading through the two articles — as well as an older BBB article about issues in the St. Louis, MO area — the problems that merchants are encountering are really straightforward. Business owners are being approached by salespeople offering big savings on their payment processing. And then once the merchant signs a contract with that person, they are saddled with hidden fees for services they were not told about. In short, the business owner is led to believe they are getting a great deal but end up having to pay out more because of all the things not mentioned in the deal. So complaints against payment processors rise in select areas.

Pricing and Transparency

This type of behavior is the exact reason Host Merchant Services utilizes its philosophy of Interchange Plus pricing and no hidden fees. These types of issues are why CEO Lou Honick says “Host Merchant Services is about bringing trust to the payment industry.”

“Payment processing is confusing,” says Honick, noting the ease in which merchants can get saddled with the types of issues that have cropped up with the BBB complaints. “The big guys make it difficult to understand exactly what your rate is and what fees are associated with accepting credit cards. We deliver personal service and clarity. Our people care about customer service and will take the time to explain how everything works.”

Honick also cites the process that Host Merchant Services uses to directly counter the problems that business owners encounter with other processors: “We believe that when you get your statement every month, you should understand every item, and it should match what you were promised in the sales process. If you have a question, there is a live person at Host Merchant Services ready to assist you.”

The Details

One of the primary ways Host Merchant Services combats the practices that lead to these complaints is with their pricing structure. Host Merchant Services uses Interchange Plus pricing instead of the more standard tiered pricing format. Interchange Plus makes statements easier to read, customer service easier to provide to merchants, and savings much easier to guarantee. Here’s a small graphic explaining the basics of how Interchange Plus works:

You can review a comparison between Host Merchant Services Interchange Plus pricing — which is simple and transparent — and the tiered pricing plans that other processors use in a two-part blog series that The Official Merchant Services Blog ran in October, 2023.

Part One
Part Two
Follow Up

What the BBB Advises ?

The BBB advises merchants take these steps to avoid getting stuck with the issues that their complainants have encountered:

Ask around.

The BBB suggests getting at least three estimates from different Payment Network Providers and to checkout he BBB Business Review of the merchant processing service. They also suggest asking fellow business leaders for referrals.

Know where to turn.

The BBB advises you check up on the support team that a potential Merchant Services Provider offers you. Can you contact them 24 hours a day? What is their response like outside of typical business hours? And the BBB advises you make sure their technical support can handle your needs as that kind of support is vital to your business’ success.

Try them out.

The BBB says that you should not settle without a trial period. You should make sure that the payment processor you choose has a 100 percent money-back guarantee before selecting them. Make sure their service works for you, and make sure they keep their promises to you.

Don’t get locked in to a long term contract.

The BBB is very clear on this. Never commit to a long term agreement that locks you in. Make the merchant services provider earn your business each and every month.

Get references.

The BBB advises that you get the payment processor to provide you with references. And then suggests you spend some time checking up on those references.

Make sure you know what you’re being charged for.

The BBB says that if you have a question regarding a fee that you were charged, ask the merchant services provider. Don’t let them hide fees on you. Make sure you understand your statement.

How Host Merchant Services Stacks Up

Host Merchant Services falls in line with what the BBB advises merchants to do. The company places a big emphasis on transparency. Their salespeople will explain a merchant’s statement in detail. One of strengths of the offering from Host Merchant Service is their guarantee to save a merchant money. They achieve this by a statement analysis. Not only will Host Merchant Services explain the details of what your statement and fees are, completely transparent, while you process with them, they’ll also explain where the hidden fees are with your current statement.

Host Merchant Services will provide references. They do not lock you in to a contract. They do not charge you a termination fee. They provide free equipment and free paper for your terminals. And they offer 24-7-365 customer service where they guarantee you will talk to a real person that will help you out with your issues. You can even initiate a live chat with HMS Support right from any page on their web site.

As Host Merchant Services COO Dan Honick says, “You stay with us because you’re happy.”

Merchant Services: Statement Sleuth

The Official Merchant Services Blog is here to share information with merchants to get them better prepared to understand how the payment processing industry works. This premise stems from Host Merchant Services and its philosophy to bring trust to the industry.

Payment processing can be confusing. And nowhere is that more evident than in a merchant’s processing statement. One of the ways some processors make their money is by hiding fees within the arcane labyrinth of a monthly statement, making the fees and the numbers difficult to understand.

Host Merchant Services believes that when one of its merchants receives their statement every month, that merchant should understand the items on the statement and that the fees should match what was promised in the sales process.

So in an attempt to help everyone understand that process better, The Official Merchant Services Blog is going to shine a spotlight on statements and see what there is to see.

What Is a Merchant Statement?

Every month, you receive a Merchant Statement from the company that processes your transactions. These transactions include Debit and Credit Card Transactions. This statement summarizes your net sales for all the cards that you process. It also provides your monthly transaction volume as well as provides you with an itemized list of your daily transactions. You can also see the majority of your debit and credit card processing fees. This is where we’re going to shine the spotlight, as this is where fees get hidden. Your fees on your statement include:

your transaction fee
your monthly discount rate for your Credit Cards
your monthly terminal fee (if you do not own your credit/debit card machine).
your Interchange charges
any chargebacks
third-party transactions
credit adjustments

The tricky part about these fees is that each company assembles their statement in a different way. Each payment processing provider has a unique statement layout structure, so most of the characteristics of the statement are the same but are put there in a different order. It forces merchants –– especially those who have used more than one processor in their time in business –– to do all of the eagle-eyed investigating themselves.

Host Merchant Services Image of Person Confused by Merchant Statement

We’ll stick to the basics and then when that’s done, we’ll take a moment to explain why Host Merchant Services might be a little less confusing than other Payment Network Providers.

Card Deposit Summary

It’s pretty common for the Card Deposit Summary to be prominently displayed in a merchant statement. A lot of times it’s the first item a merchant will see on their statement. The phrasing may be a tad different –– perhaps it’s called a fund summary –– but for the most part it’s the opening line on each merchant services provider’s statement. The summary tends to include a laundry list of statement data, such as:

Amount of transactions incurred in that month
The dollar amount of those transactions
What credit cards were used
Any discount or coupon usage charges

Often this information is presented as individual daily line items, but some payment processors may combine all the data into one section.

Credit Card Fee Summaries

After the deposit summary information, most statements provide some sort of variation of how much the credit card issuer charged per transaction. This is usually called the Summary of Card Fees. As we explained in a previous blog series, a lot of payment processors offer a tiered pricing plan. And this is the section of the statement where you will see fees being charged for “qualified transactions.” That term specifically relates to your qualified tier in the pricing plan you signed up for. This section should include any fees, discounts and rates applied to transactions made through your merchant count. Most payment processors provide a complete list of card fee categories in this section, since qualified and non-qualified pricing tiers differ. Also included should be a listing for gross sales amounts per credit card and any fees and discounts applied to specific card transactions.

Transaction Fees

This section is an extension of the Summary of Card Fees section. This section lists each fee related to card transactions in dollar amounts. This can be a daunting section to sift through as the terminology used in this section is extensive. There is no shortage of card fee categories, and you’ll see chargebacks and batch header fees and ACH return fees mentioned here. This is why Host Merchant Services says payment processing can be confusing. The statements sometimes overwhelm merchants with tiny fees and cryptic buzzwords. Within that morass, the black hat companies will hide fees that some merchants aren’t aware they are paying or –– even worse –– aren’t aware they don’t even need to pay.

Host Merchant Services Image of Merchant Statement Analysis

No Hidden Fees Guarantee

Now that some light has been shed upon the statement, and we can see where the fees get hidden and where the confusion takes place, it’s time to take a look at a much simpler way of doing this: Host Merchant Services offers a processing plan with no hidden fees. The company offers its merchants an Interchange Plus pricing plan. So right off the bat, there are no tiered pricing plan issues, so its merchants are not hit with “non-qualified” tier penalties and fees. Host Merchant Services also eschews a long-term contract. So there is no application or set up fee. No annual fee. No Non AVS Adjustment fee. Host Merchant Services does not penalize you with termination fees. Host Merchant Services also does not lock its merchants into contracts for equipment. The company provides free equipment, including free terminal paper. The prices that the company quotes during the application process are grandfathered, and will not increase at all during the lifetime of the business relationship.

It’s a simple and straightforward plan, really. Host Merchant Services shows you exactly what you will be charged on your monthly statement. The company has swept away many of the added charges that other companies hide on statement fees. And then the company sticks to the plan they quoted its merchant. The company will be happy to review your statement and help you find areas where you can save money each month.

For more information contact the company here.

So monthly statements may be extremely confusing –– to the point where one thinks it is being done on purpose. But using some of the guidelines put forth here, or using Host Merchant Services itself, you can find your way through the puzzle that is payment processing.

Interchange Change For Charities

A really short entry in The Official Merchant Services Blog today. More of a news flash for merchants:

Effective October 15, 2011, Visa introduces the Consumer Credit Card Charity Interchange Rate Program for charitable organizations –– which specifically only refers to organizations with the Merchant Category Code (MCC) of 8398, Charitable and Social Service Organizations – Fundraising. Processing requirements for this program will be the same as those for the current CPS Retail 2 Program (the previous interchange program that was available to charitable contributions). The new rates for this program are 1.35% + $0.05.

Host Merchant Services offers this great low rate affected by Visa’s recent announcement in addition to the quality customer service and targeted focus of HMS processing solutions. Download our quick reference guide here to have all the information on this new interchange rate at your fingertips.

We keep our nonprofit payment articles together in Nonprofit Payment Resources; see it for more on interchange changes for charities.

More Durbin Amendment Follow Up [2023 Update]

The Official Merchant Services Blog continues its in-depth look at an interesting opinion article we found on Practical E-Commerce. We recently did a 2-part series on the differences between Tiered Pricing plans and Interchange Plus pricing plans. And in it we heralded Interchange Plus and explained why Host Merchant Services uses what we feel is the superior pricing plan to benefit its merchants. Phil Hinke’s article went beyond just the pricing plans, however, so we split our analysis up into two separate entries. This one will focus on the Durbin Amendment.

Durbin Amendment Can Bring Added Fees

Hinke’s article goes on to discuss some of the effects of the Durbin Amendment in relation to MSPs and their offerings: “No merchant should make a decision solely based on the savings analysis done by a merchant account provider, even if it is a well-known provider or financial institution. I am seeing biased and flawed savings analyses presented to merchants. The most common flaw is identifying savings that take the merchant’s existing debit and credit card volume, then showing a projected savings based on the entire volume being at the lower Durbin Amendment regulated debit card rates. Make sure all savings analyses show an accurate breakdown of credit and debit card volume for your business. Also, remember that the Durbin-Amendment-regulated rates will probably only affect 60-70 percent of your debit transactions, since it applies only to financial institutions with more than $10 billion in assets. The remaining transactions will still be at the previous unregulated rate.”

Hinke again makes a compelling point. Much of the Durbin Amendment analysis that was presented in the media solely focused on consumers and the banks. Rarely did traditional media sources delve into what would happen with the transaction processing side of things after October 1, 2011. Host Merchant Services addressed this in their Durbin Amendment analysis, however, citing the very issue that MSPs could indeed soak up savings from the Durbin Amendment: “There is also speculation that the merchant won’t see much of the savings in the first place. And this speculation is tied directly to the payment processing industry. The basics of the industry are that merchants do not deal directly with large credit card issuers like Visa and MasterCard. Rather, they deal with acquirers, or middle men, who offer payment processing of credit cards and debit cards to merchants through their acquirer company’s own goods and services. The rampant speculation is that the acquirers will reap the large savings from the Durbin Amendment, since they are in line between the credit company and the merchant, and will shift high fees right back onto the merchant. This wiggle room in the middle, if it takes place as predicted, could see a large short term spike in profits for acquirers.”

Knowing is More Than Half the Battle

Hinke also suggests Merchants really get involved in a discussion with an MSP that gives them an analysis and an offer: “However, I believe merchants should ask these companies tough questions before using them. This includes asking how the third party makes money, and who is paying that company.”

Host Merchant Services is proactive in this area. The company provides articles on its web site covering specific and helpful topics. Host Merchant Services provides The Official Merchant Services Blog to keep its customers up to date on the latest news affecting their business and the processing industry. The company guarantees savings, transparency on statements, and 24x7x365 customer support. The goal is to keep its merchants happy and informed. Interchange Plus in the hands of Host Merchant Services is the perfect tool. Because it’s goals take advantage of the strengths of the pricing plan.

In Conclusion

Mr. Hinke’s article is insightful. It demonstrates some of the problems that can still occur with an Interchange Plus pricing plan and strives to get merchants to be vigilant with their statements and processing fees that are on their statements.

Interchange Plus Follow-Up

The Official Merchant Services Blog looks at an interesting opinion article we found on Practical E-Commerce. We recently did a 2-part series on the differences between Tiered Pricing plans and Interchange Plus pricing plans. And in it we heralded Interchange Plus and explained why Host Merchant Services uses what we feel is the superior pricing plan to benefit its merchants.

The article begins by introducing the author: “Contributor Phil Hinke is a credit-card veteran who now consults with merchants on lowering their processing costs. Hinke believes the credit card processing industry is often unfair to merchants. He believes the Durbin Amendment — which lowers debit card interchange rates — is fostering deceptive pricing practices by some merchant account providers. He explains his views in the article below.”

This bring together the topic of Merchant Account pricing plans with the Durbin Amendment, something The Official Merchant Services Blog has also been covering in detail. Deceptive pricing practices are something Host Merchant Services strives to overcome in the industry. And one of the key factors the company chose Interchange Plus pricing is because of the transparency which lets merchants see fees on their statements much better than tiered pricing plans.

But Mr. Hinke’s article is an eye-opener because it details ways in which even Interchange Plus pricing can be manipulated to hide fees from merchants: “I am a strong proponent of interchange-plus pricing and, to date, I have never recommend tiered pricing for merchants. (I addressed the differences between interchange-plus and tiered pricing at“Notable Views: Credit Card Veteran on ‘Onerous’ Processing Rates,” a previous article.) However, merchants on interchange-plus pricing can still be grossly overpaying for their card processing. In fact, of the hundreds of merchant statements I have analyzed, the majority of merchants that were overpaying were already on interchange plus, which gives merchants only the potential for fair prices — nothing more.

I recently showed a merchant who was already on interchange plus pricing that he could save money by changing to a provider with a higher processing rate. How could that be? The processing rate is just one of many costs the merchant pays. In this case, the merchant account provider had given the merchant what seemed to be an enticing rate. However, it also hit the merchant with copious monthly and annual fees. Those fees more than offset the rate savings.”

This is a compelling point. And one of the areas where Host Merchant Services is able to stay competitive. Interchange Plus is a tool that a Merchant Services Provider can use to give its customers fair prices. But it’s only a tool. MSPs can still do their best to mark up fees and manipulate the process for profit maximization. As Mr. Hinke points out Interchange Plus only gives merchants potential for fair pricing. It still needs a motivated, hungry MSP in place looking to save merchants money by taking advantage of the tool.

An MSP like Host Merchant Services utilizes that tool along with its overall philosophy to guarantee its merchants savings, transparency and customer service. In that way, Interchange Plus works for the merchant, because it is part of the overall plan to have merchants stick with the company because they are getting value for the services. As Chief Operations Officer Dan Honick often says to clients, “You stay with us because you’re happy.”

Tiered vs. Interchange Plus Part 2

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.

Tiered Pricing vs. Interchange Plus

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.

Why the Durbin Amendment Got it Right [2023 Update]

The people in Washington aren’t exactly popular these days, and mostly for good reason. Unemployment is high, the so-called economic recovery is weak, and small businesses are hurting. However, another round of stimulus is on its way, and this time it might just work. Even better, this stimulus comes at the expense of banks that got us into this mess to begin with. To be fair, there is plenty of blame to spread around but that is a topic for another day. The Durbin Amendment went into effect October 1^st, and many businesses will see a significant reduction in their monthly debit card processing fees. This isn’t just for pin-based transactions, but applies to all Visa and Mastercard logo signature debit cards, as well as card-not-present debit card transactions via Internet and phone order. On average, fees will be reduced by over 1% per transaction, resulting in a windfall for small business.

There are a lot of arguments against the Durbin Amendement. I’ll outline and debunk the major ones here:

The savings will not get passed along to the merchants.

True, your merchant services company is not required to pass the savings along to you. If you are on tiered pricing instead of Interchange plus, you aren’t going to receive the benefits. But this is also creating a huge opportunity for merchant services companies like us to introduce customers to the benefits of our pricing model and to save them a very significant amount of money. In short, if you’re merchant services company isn’t passing the savings along to you, it’s time to find a new merchant services company.

Merchants will not pass the savings along to their consumers.

Again, true, but not necessarily the point. In a free market, any time you create margin, you create opportunity. Businesses all over the country are getting a little relief in their margins. Some will choose to use that margin to compete on price. Some will pocket the profits. Many will use that extra profit to reinvest and grow their businesses through hiring and infrastructure enhancements. No matter how you slice it, this is money directly to small business and that is great for the economy.

Banks will charge fees to offset the lost revenue.

Sure, this is happening at some high profile institutions like Bank of America. But other banks are also using it as an opportunity to lure you away. Banks are limited by competition in terms of how much of the fee they can pass along to you before you bolt to a competitor. That is the free market working the way it should. When you take monopolistic fees like Interchange that are unavoidable to merchants and move them to the front of the transaction, consumers and small businesses ultimately win. You now have the ability to shop for the best deal, where transaction costs were previously hidden and passed along in other ways.

Overall, the Durbin Amendment should provide a multi-billion dollar boost to small businesses everywhere, and the government didn’t have to shell out taxpayer dollars to make it happen. Sure, it may be somewhat arbitrary, and too much regulation is never a good thing, but the card associations that impose Interchange fees operate as a cartel with monopolistic powers, so the government has a valuable role to play in the process. We should all celebrate the Durbin Amendment and the tremendous benefits to small business. If you’re not setup to take advantage of the savings, what are you waiting for? Apply now!