Blended pricing vs Interchange++

Card payment processing requires complex coordination between various third parties. These include the cardholder’s bank, the card scheme, and an acquirer – the bank or financial institute which acquires funds for a business from their customer. When deciding on how much to charge their clients for each transaction, payment providers have to factor in all of these elements, as well as include a fee for their services.

Blended pricing and Interchange++ are two of the most widely used pricing models offered for card transactions. The main difference is the level of transparency in the billing process. Each model also offers their own benefits, which we'll explore further below.

Let’s start by looking at Interchange++.

Interchange Plus Plus pricing (IC++)

The Interchange Plus Plus pricing model breaks down the card processing charge into three separate fees:

  • Interchange fee
  • Card scheme fee
  • Processing fee

Let’s look at these fees in more detail.

Interchange fee

During card transactions, the cardholder’s bank charges the acquirer for processing the payment. This is known as an interchange fee. The acquirer then includes the interchange fee as part of its payment processing fees, passing on the cost to the business using its services.

The interchange fee is determined by a variety of factors, including:

  • Country of card issue
  • Business location
  • Type of card used
  • Type of transaction
  • Technology used
  • Security processes

This means that there are hundreds of different rates of interchange fees that a business may have to pay. Most card schemes, which are central payment networks, and acquirers are required to publish these rates so they can be regulated, meaning customers can easily look up the interchange rates for certain types of transactions. However, some card schemes, such as interregional commercial cards, are not required to publish fees.

Card scheme fee

Card schemes (such as Visa or Mastercard) charge the acquiring bank a fee for the use of their systems and networks. This is known as the card scheme fee. 

The card scheme fee is determined by a variety of factors, including:

  • Type of card
  • Type of transaction
  • Average transaction value
  • Business location
  • Security protocols
  • Authorisation fees
  • Cross-border transaction fees
  • Licensing fees
  • Fraud prevention

Processing fee

The processing fee is the cost that the acquirer/payment service provider charges to the business for using their services. As well as covering the actual costs to process the payment, it also includes a markup, allowing the acquirer to make a profit on each transaction.

The processing fee can vary a lot between acquirers and may be set based on the level of risk posed by the business. For example, high-risk businesses such as gambling companies will be charged more per transaction than low-risk categories such as retailers. This is to make up for the higher chance of transaction failures in more risky industries.

Before we delve into blended pricing, let’s look at Interchange+, a simpler version of Interchange++..

Interchange Plus pricing (IC+)

The Interchange+ pricing model breaks down the card processing charge into two fees:

  • Interchange fee
  • Processing fee

The key difference between IC++ and IC+ is that, with the latter, the card scheme cost is rolled into the processing fee. That means it’s impossible to tell exactly how much markup is being charged on the service.

Regardless of which of these two pricing models they choose, businesses will always pay the actual interchange fee charged by the card issuer. As interchange fees can vary, this may work out cheaper or more expensive than paying the fixed rate that is charged when using a blended pricing model.

Blended pricing explained

The blended pricing model still covers the three types of fees we’ve looked at above, but combines them all into one cost. This means that a business won’t be able to tell exactly how much they’re paying for the individual interchange, card scheme, and processing fees.

While this model is less transparent about the cost of each fee, it offers more predictable fees, making it far easier for businesses to know in advance how much they will pay for a certain type of transaction and forecast their monthly outgoings. In many cases, this price is a certain percentage of the payment value and also includes a set transaction fee.

Some blended pricing models charge a fixed rate for each transaction, while others offer different rates for different payment cards, or a tiered pricing structure where the fees go down as the volume of transactions increases.

Blended pricing vs Interchange Plus Plus

Ultimately, how a business operates governs which pricing model suits it best.

If a business regularly accepts payments that would work out to be expensive on an IC++ plan, such as international transactions, they might be better opting for blended pricing, where the acquirer or payment service provider absorbs any increased costs. However, this might mean that they end up paying more for domestic card payments than if they were on an Interchange++ plan.

For businesses where transparency in the fees they are paying is important, Interchange++ pricing is likely to be more suitable. However, it’s worth noting that not everyone is eligible for an Interchange++ pricing model. Many payment service providers only offer it to high-volume businesses, or to companies with the expertise to manage complex card payments.

To make the comparison between the two a little easier, let’s look at the benefits of Interchange++ and blended pricing models.

Benefits of an Interchange Plus Plus pricing model

Choosing a payment provider that offers an Interchange Plus Plus pricing model can be beneficial for businesses. This is what it can provide:

Transparency of costs

IC++ makes it easy for businesses to see exactly what they are being charged for. By better understanding each individual cost, businesses can make better-informed decisions on pricing policies for particular markets or use marketing to encourage customers to use  payment options with lower processing fees.

Potential savings on fees

Under the Interchange Plus Plus pricing model, different transactions are charged at different interchange rates. For example, the interchange rate for a credit card transaction could be 0.30%, but the same card used in a cross-border transaction might be charged at 1.50%. Whereas blended pricing services may charge a flat rate for interchange fees and pocket the difference, an IC++ model would charge the exact interchange fee for the payment, passing on any savings to the business.

Encourages fair play

The transparency of each individual fee means that acquirers’ fees are regulated to ensure fairness. In 2015, the European Economic Area (EEA) introduced an interchange fees cap for consumer cards in all regions to ensure a flat rate across all EEA regions. This regulation means that interchange fees in the EEA are some of the cheapest worldwide. However, blended pricing rates are also lower as a result.

Benefits of a blended pricing model

The blended pricing model also offers a variety of benefits for businesses.

Predictable rates

As the Interchange Plus Plus pricing model is based on a variety of different factors and fees, figuring out the cost to the business can be overwhelming – particularly for new or small businesses. The predictable rates offered by blended pricing make it much easier to estimate monthly costs for payment transactions and carry out accurate business forecasting.

Cheaper international fees

Businesses that regularly accept cross-border transactions may find that blended pricing works out cheaper than Interchange++. As international transactions cost more to process than domestic transactions, the fixed rate offered by blended pricing can be more cost-effective in the long-term.

Only pay for successful transactions

With a blended pricing model, businesses only pay for transactions that are successful. With Interchange++, card schemes will pass on fees for card authentication and 3D Secure verification even if a transaction doesn’t go through.

Benefit from uncomplicated payment processing fees

At Mollie, we provide credit card processing fees in a blended pricing model, offering straightforward, predictable fees for every payment you receive.

Our effortless payments solution helps you to accept multiple payment methods, access advanced security, and offer a seamless checkout experience that drives conversions. You also benefit from a number of other features, including a user-friendly Dashboard and app that makes it easy to manage your money.Find out more about payments with Mollie today.

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