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Why Interchange Plus is the most transparent rate plan?
It's clear where your money is going between the card issuers and your processor when your rates are simply an interchange cost plus a flat markup on each transaction. This means you are opting in for clear merchant statements and lower transaction costs on average, since a higher rate would not be accounted to each transaction to cover potential scenarios (as you would see in Flat Rate pricing).
Here is an example of Interchange Plus versus Flat Rate
A restaurant merchant can qualify for an Interchange Program (CPS/Restaurant) of 1.54% + 10 Cents per swiped Visa non-reward credit card. Under the Interchange Plus pricing using QuickLine Payments and Aldelo Pay's Ultimate as example, its processing cost would be 1.62% + 15 cents (1.54% + 10 cents interchange plus 0.08% + 5 cents merchant service provider markup).
In contrast, merchant service providers offering a flat rate of lets say 2.75% per swipe, means you will pay 1.13% more on each transaction.
Taking the restaurant merchant example further, in today's card processing landscape, nearly half of payment cards processed are signature debit. These are the debit cards having the Visa or MasterCard logo and are processed as a credit card. Such debit cards issued by regulated banks (large banks) carry an interchange of only 0.05% + 21 cents per transaction, while a debit card issued by exempt banks (smaller banks) carry an interchange of just 1.19% + 10 cents. (Based on Visa CPS/Restaurant Regulated and Exempt Check Cards interchange programs)
It is very clear to see why Interchange Plus pricing enables a merchant far greater savings than a Flat Rate model.
Under Interchange Plus, the merchant will always be paying the wholesale cost plus a known markup. It is transparent, simple, and money saving. On the other hand, a Flat Rate pricing charges a merchant let's say 2.75% regardless of the card type, so a Regulated Visa Check Card having a 0.05% + 21 cent interchange cost will still end up costing the merchant 2.75%. That's an unbelievable merchant cost of just $0.33 under Interchange Plus, versus an extremely high cost of $1.38 under Flat Rate, for a $50 Visa Regulated Check Card transaction!
The higher the ticket, the larger the savings!
Flat rate pricing in the market tends to range between 2.70% to 4.50%. Under interchange plus, if the merchant service provider has a markup of 0.08% and 5 cents per transaction, that means the merchant's total cost of a transaction will be merely 0.08% and 5 cents above the wholesale costs for all credit card and signature debit transactions, regardless of qualifications or downgrades.
Lets say a merchant swipes a Visa credit card for $30, under Interchange Plus pricing of 0.08% and 5 cents, the processing cost to the merchant would be $0.64 (Based on Visa CPS/Restaurant interchange program), versus Flat Rate pricing of 2.75% where its processing cost would be $0.83 cents. That's an annual savings of over $3,400 under Interchange Plus if merchant processes just 50 such transactions a day.
Taking another example of the above for a transaction of $50, the merchant's processing cost under Interchange Plus pricing would have been $0.96. In contrast, the Flat Rate of 2.75% pricing, its processing cost would be $1.38. Again, Interchange Plus pricing helps a merchant save over $7,500 a year if only 50 such transactions were processed a day.
Lastly, revisiting the example of Visa Regulated Check Card interchange program savings mentioned above, using our examples here, a small ticket of just $25 incurs a $0.30 processing cost under Interchange Plus, while costing a merchant $0.83 under the Flat Rate of 2.75%. On an annual basis, that's a huge savings of over $9,500 under Interchange Plus when there are just 50 such signature debit cards processed a day.
On top of all of the above examples, the savings will be even more extreme if the card was keyed. Keyed Flat Rates could be as high as 3.50% to 4.50% + 30 cents per transaction. Wonder what the rate will be for Interchange Plus? The merchant service provider's markup is always the same regardless of Swiped, Dipped, Tapped, or Keyed. Only the interchange program changes which is the wholesale cost that is the same across all merchant service providers.
*Disclaimer: rates, formula, and savings for demonstration purpose only. Merchant's actual savings may be higher or lower based on individual processing volume.
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