What should I choose: Interchange Plus Plus or Blended pricing?
We get it - payments are complex enough, and that’s before someone asks you whether you would like to be priced Blended or Interchange++ (said as “interchange plus plus”). Both pricing structures have their advantages, and it will depend on which is more suited to your business.
What are they?
Blended pricing is where the merchant (that’s you) is charged a flat percentage fee. This percentage fee includes the scheme fee, the interchange fee, and the merchant service fee. We appreciate that that probably didn’t clear anything up, so let’s break those down:
Scheme fee: These are the fees charged by the provider of your customers’ cards for using the card network i.e. Visa, Mastercard etc
Interchange fee: These are the fees charged by your customers’ banks for providing them the credit i.e. CBA, Westpac, ANZ, NAB etc
Merchant service fee: These are the fees charged by the payment processor (that’s us) for moving the money from your customers’ bank accounts to your account.
When you are charged blended rate, all three of these fees are wrapped up into one percentage (of the total transaction value). As an example, at GreenPay our off-the-shelf pricing is 1.4% for in-store transactions, and 1.5% for online transactions.
Interchange++ contains the same three components as blended (above), but instead of it being one flat percentage, the scheme and the interchange fees are passed on at cost, and there is a percentage fee added on top for the merchant service fee.
Note: for both of these pricing models, and particularly for online transactions, there may also be per transaction fees that are normally charged at a dollar rate not a percentage.
Note: These are not the only two ways that you can be priced, but they are typically the most common in Australia.
Let’s talk about Blended Pricing
Blended pricing is generally more common for small to medium sized businesses, as it provides certainty and predictability. Because you know how much you will pay on every transaction it can make budgeting and forecasting simpler. This is particularly helpful for new businesses that may not understand their customers’ or area’s card mix (and therefore costs) yet.
However, with this certainty can come some downsides, as you will typically end up paying more on a blended pricing model as the provider needs to make sure they will cover fluctuations in the costs from the banks or card schemes. If you are a high-volume merchant or have a number of low-cost transactions this may mean you overpay. You also may not have any transparency into how that fee is split between the payment processor, the banks, and the card networks, so it can be difficult to know how much the underlying costs are if you want to switch to Interchange++.
Now let’s look at Interchange++ Pricing
Interchange++ pricing is typically more common with enterprise merchants, as at higher volumes, small changes in payment fees can add up to thousands of dollars. Generally interchange++ pricing works out to be cheaper for the merchant, as the payment processor doesn’t need to mark up their price in case of fluctuations in the scheme or interchange costs. This is much more transparent for the merchant as they can see who is receiving each component of their payment fees.
However, there’s never a free lunch, and the interchange++ pricing model can be more complex to understand and predict. As your fees change with every transaction based on your customers’ cards, budgeting for these fees is much more difficult. The merchant will typically need to have a decent transaction history to be able to see the averages and fluctuations over time to properly forecast, however you may still experience volatility. This level of detail can also be overwhelming for someone who is new to payments.
What’s the TL;DR?
Blended pricing model is one flat percentage, that is easy to understand and therefore common with smaller merchants, but can be more expensive as the provider needs to account for fluctuations in the costs from the cards and the bank.
Interchange++ is one flat percentage for the merchant fee, and the bank and card network fees are passed on at cost. It is much more complex to understand, typically used by enterprise customers, and is typically cheaper but more variable.
Which one is right for my business?
How long is a piece of string? Ugh I’m so sorry I can’t believe we actually put that in this blog, but the truth is that there is no easy answer. While the above is a helpful starting point and might have given you a good idea, we’re more than happy to take a look at your individual business and help you to figure it out. Just contact us whenever suits you for a free consultation, we’re happy to chat (as long as you can deal with more dad jokes).