What Credit Card Processing Pricing Option is Best for my Business?

Credit card processing pricing is confusing. I spent a lengthy amount of time today thinking of what other industry is similar to the payments industry. Even some disliked industries such as energy, cable & internet aren’t nearly as complicated and downright frustrating.

There are many elements that make up the credit card processing costs which a business pays. This article is only taking a look at the most basic element; the pricing structure of your merchant account. While the structure doesn’t solely determine if you have good, bad, or fair pricing, it is typically a strong indicator of which of those three buckets your merchant account falls under.

There are four credit card processing pricing structures which are: Interchange Plus, Tiered, Billback, and Flat Rate.

Is any one price structure better than the rest?
Yes. Unless that particular one has a higher margin built into the pricing.

Below we will discuss the basics of each one so you can decide what is best for your business.

Interchange Plus
Quick Snapshot: Just like your favorite vacation spot, this is where you want to be.
What is Interchange Plus Pricing?
You receive the wholesale, bottom line pricing from the Card Issuers and Card Brands. Your credit card processing company then adds their pricing on top of those costs. This pricing is also sometimes known as Cost Plus or Wholesale Plus.
Benefits:
Interchange Plus pricing is the most transparent pricing model there is.
What you should watch out for:
Some processors pad the Interchange rates with additional mark-ups. Since most CFO’s, Controllers, and Business Owners don’t know all of the Interchange rates, this is a way for a credit card processor to bid low and make more revenue from the merchant account.

Tiered
Quick Snapshot: Taking it back old school, Tiered Pricing is so 90’s and early 2000’s. This is when it was most popular. Unfortunately, many credit card processing companies are stuck in the good ole’ days and keep pricing their customers on this structure.
What is Tiered Pricing:
Your merchant account will be charged a qualified rate for debit and credit cards. On top of this are higher tiers of mid and non qualified cards.
Benefits:
There is almost nothing positive to say about Tiered Pricing. At a stretch, one could make an argument that there is something simple knowing that your rates will qualify for 1 of 3 or 4 tiers.
What you should watch out for:
Tiered is a pricing structure that typically does not favor a business’ bank account. In most instances, it is a way for a credit card processor to make significantly more revenue from a business by charging higher margins.

Billback
Quick Snapshot: Billback = Bad.
What is Billback Pricing?
Your business is quoted a qualified rate. For example, let’s say the percentage is 1.60%. That sounds good, right? Not so fast. Your merchant account then receives surcharges for higher amounts.
Benefits:
There are no advantages to a business by having a merchant account set up for billback pricing.
What you should watch out for:
Billback or sometimes referred to as ERR is the most confusing pricing. When I first started in the payments industry, the company I worked for only priced businesses with billback. I didn’t know any other pricing types at that time. When I asked the owner of the company why we priced businesses this way, he responded that it is hard for both business owners and competing credit card processing companies to understand so there would be a lesser chance of the merchant switching.
The merchant statements don’t provide the actual rates for these surcharges. Rather, your merchant statement just reads and overall cost for these card types.

Flat Rate
Quick Snapshot: Are you okay with overpaying for simplicity?
What is Flat Rate Pricing?
Your merchant account is charged one fixed rate so your fees do not fluctuate depending on the card type being used.
Benefits:
There is no simpler way to understand how much your credit card processing fees are each month.
What you should watch out for:
Depending on your average ticket, processing volume, and the flat rate percentage, this type of pricing can be advantageous to a business. However, that also can be at a disadvantage depending on that criteria. More often than not, this is not the best pricing structure for a merchant account.

My Two Cents…
Typically Interchange Plus is the best option. However, if your merchant account has a high margin built into it vs. a flat rate with low margins, you could be paying less with flat rate pricing.

Your takeaway should be this. If you want the lowest pricing, Interchange Plus is probably going to be your best choice. If you want the simplest, Flat Rate is the way to go. When it comes to Tiered and Billback pricing, you want to be on a continent far, far away from these two.

About

Vice President of True Merchant.
Really Nice Guy.