Different Pricing Structures of Merchant Accounts
Setting up for a merchant account, the biggest problem someone can face is choosing the right pricing structure. Different merchant processing service providers offer a variety of pricing structures and all of them have their own set of pros and cons. The major player in this aspect is the interchange reimbursement fee which precisely can be defined as a schedule of fee. The amount of this fee depends on different factors such as type of card, the way in which the transaction is processed and other information regarding business and the transaction.
Another important term is ‘Discount rate’. Along with the interchange and other fees, every bank or merchant processing service provider creates profit by adding mark-up to all of the fees charged. The pricing structures defined below can have different effects on these fees and the overall cost.
Interchange Plus – this is probably easiest to understand structure, given that you already understand what exactly interchange fee is. It is a transparent model and passes interchange directly to the merchants, adding a fixed mark-up. Renowned credit card processing providers publish their interchange tables bi-annually.
Tiered Merchant Account Pricing – Generally it can range from two to six tiers. Although it is among the most widely used pricing structure, it may not be very cost-effective in comparison to newer models. Also, multiple tiers make it more complicate to understand the actual interchange fee and other charges that you get to pay.
Enhanced Recover Reduced (ERR) – This model combines both tiered and Interchange plus models with a few features of its own. It is one of the lower cost merchant solutions when compared to the tiered structure. However, it is not a transparent one like Interchange Plus. It uses a base qualified rate and may include hidden charges.
Flat Rate Merchant Account pricing – it is regarded as one of the best and profitable structure so far. The best thing is that the sales volume does not affect the processing charges. The service providers charge a flat monthly fee and the interchange cost is passed directly to the merchant on every transaction. Besides all these advantages, there is no mark-up at all.
A flat rate merchant account provides accountability and transparency to the Payment Card Industry. Business owners can go directly to Visa® and MasterCard’s® web sites and see the exact interchange wholesale rates charged to the merchant processor. Armed with that knowledge and your flat fixed fee plus a per transaction fee, it is impossible to pad statements with unnecessary surcharges and fees.
Another benefit to the latest industry trend is when your businesses sales and revenue increase your fixed flat fee does not increase unlike the other industry pricing. Of course if your transaction count increases your business will have more transaction fees. However the rate paid for the amount of volume processed will not increase. Business owners want accountability and because every dollar counts these days, why should your business not profit from the savings instead of paying the banks and the processors?
