What Pricing Structure is Right for your Business?

Having consulted with thousands of merchants, the question we are most frequently asked is "What's your rate?"  Knowledge about what determines discount rates and the fees that impact your bottom line cost will help you make an informed decision.  

Interchange fees are the single largest component of discount rate pricing.

Interchange fees are paid by merchant-acquiring banks to cardholder-issuing banks to cover the cost to convert a charge on a cardholder's card to a cash deposit in a merchant's business checking account.   The Interchange rate is paid to the card issuing bank as a financial incentives for banks to market, issue, and accept credit risk of cardholders.  Since card issuing banks can't count on cardholders running up balances and paying finance charges, Interchange fees are a fundamental pricing componet in the payment industry. 

Interchange is important to a payment system because it facilitates growth. It helps to overcome the which comes first question, "the chicken or the egg". Without cardholders, merchants would have no incentive to accept credit cards and without merchants, cardholders would not carry cards.   The network effects of adding cardholders and merchants into the payment system increase the value of the system.  The more places that accept credit cards, the more valuable it becomes to carry a card.

All merchant processing companies operate from the exact same Interchange, Dues, Assessment and Access fee cost. These fees are set by the card companies and consist of a percentage rate plus a per-item transaction fee.  Interchange pricing depends on your industry category, the method by which you accept the card and the card product you accept. Interchange fees vary by specific industry accepted methods and risk. 

Professional merchant pricing consultation

With this understanding of industry cost, a Vantage payment consultant can help your business choose between a simple flat rate price or an enterprise-level Interchange pass through pricing plan.  

Often this decision will depend on your volume of card sales.  However other factors include your merchant category code, your average transaction size, the software you use, if you charge your customers a service fee and more.  

Regardless of the pricing model you choose, an often overlooked key to your best pricing starts with avoiding being enticed by below-market gimmick rates designed to lure your business into a multi-year processing agreement with stiff early-termination fees.  An easy rule of thumb is to always pass on any merchant rate quote that contains an early termination fee.