Merchant Account Rates & Pricing - Interchange Plus, Tier Based & Flat Rate Comparison

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Merchant account rates are difficult to understand so in this video I’m going to compare 3 merchant account pricing models: interchange plus pricing, tier based pricing and flat rate pricing from the payment aggregator companies like PayPal, Stripe and Square.

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Merchant account pricing is often an apples to oranges comparison.
So we’re gonna talk about interchange rates and pricing, Tier based pricing, flat rates, and how these compare to one another.
So if you’ve ever wondered which rate structure is best, stick around because we’ll get into it here and at the end of the video I’ll give you the end-all be-all SINGLE comparison factor that you can use to compare ANY two merchant services providers to each other based on rates and price.

ROLL INTRO

So rates and price… Everyone wants to know and thus, it’s one of the most common questions I get asked.

And you’re probably considering your options and wondering for example… : “Why does Square have a fixed rate, but then all the merchant account companies have this thing called interchange plus?

Again I admit that it can be confusing to compare them.

So to start, let me remind you about interchange...
Interchange is a small fee paid by a merchant's bank (acquirer) to a cardholder's bank (issuer) to compensate the issuer for the value and benefits that merchants receive when they accept electronic payments. It enables banks that issue electronic payments to deliver tremendous value to merchants, governments and consumers.

So that’s the official definition...but in short, You can think of it as a base cost for all credit and debit card transactions.

A single interchange rate plus a transaction fee in most cases, is paid every time a transaction takes place and that goes for all 4 major card brands here: Visa, Mastercard, Discover and AMEX.
So, with that in mind let’s look at the first pricing model:

Interchange Plus

This is also known as “cost plus” pricing model, and is commonplace in the merchant account industry. It’s often the go-to pricing model for processors to offer to business owners.

Here’s how it works:

The merchant account provider simply passes through the network cost, which is interchange, and then adds a processor specific markup to cover other costs associated with maintaining that merchant account, such as administration fees, software and technology license fees, customer service, fraud and other risk factors just to name a few.

There are 2 main variables within interchange plus pricing and they are:

The % margin above interchange along with the per item fee above interchange

And both of these things are applied every time a transaction takes place.
Since there’s 100’s of interchange categories each with potentially different rates and transaction fees, this pricing model ensures a fixed margin of cost to you, the business owner, while giving the benefit of having the actual interchange costs passed through to their account.
Interchange plus is often regarded by industry payment professionals, as the “true” and “Transparent” rate structure when it comes to merchant account pricing. More on that at the end of the video…