Merchant Pricing: An Explanation
3rd August 2021

When it comes to payments, there's an awful lot of different factors that need to be analysed. One such factor is the fees a merchant pays to accept debit or credit card payments. 

Our experts outline the different pricing options and provide tips on ensuring you get the best rates possible...

Merchant Fees Explained

In a society where time is precious, many merchants accept the fees charged by their processor and view the high transaction costs as a necessary measure of accepting online payments, without questioning them. As far as merchants are concerned, if they receive their funds in a timely manner, then everything is fine. 

However, could you be doing a better job of reducing these costs? When looking at the fees you are being charged, you need to understand the difference between them: 

  1. Interchange Fee

  2. Payment Processor Fees

  3. Scheme Fee

  4. Shopping Cart Fee

Luckily for you, we have broken it down to help you understand what you're paying for, what alternatives you have, and how to choose the best option for you and your company.

Interchange Fee

An interchange rate is a fee that a credit card issuer, such as Discover, Visa, or Mastercard, charges the receiving bank every time a consumer pays with a credit card. The interchange charge is done to support the issuing bank in covering handling expenses and the risk of authorizing the sale, as well as any fraudulent transactions that may occur. Rates might range between .05% + $0.10 and 3.10% + $0.22. It is the responsibility of your payment processor to collect and pay these fees on your behalf.

Each network determines the interchange fees, which vary depending on the issuer and geographic location. The interchange rate is further determined by the type of card used, the risk rating of the merchant's business, and how the payment is accepted (swipe, online, or typing into a terminal). 

Payment Processing Fee

The payment processing cost equation represents the fees that your processor will charge you for processing your transactions. As a merchant, connecting directly to the card associations is complicated and time-consuming, which is why the majority of merchants use a middleman known as a payment processor, such as us at DNA Payments. 

This is the only element of the equation that a merchant may be able to negotiate. Payment processors provide a variety of cost structures that vary based on a range of factors such as:

  • what you sell

  • how you sell it

  • the sustainability of your business

  • your average order value, your refund rate

  • your chargeback rate

Each of these elements has the potential to influence your rates, both favourably and unfavourably.

Scheme Fee 

Scheme fees are the costs that credit card companies (Visa, Mastercard, American Express, and Discover) charge on top of every order. They are charged as a cost of doing business and giving the merchant the ability to use their name. Unfortunately for the merchant, these organisations are looking to make a profit, and will always take their cut, which is often in the 0.12-0.15% area. These fees get updated twice a year.

Shopping Cart Fee 

The Shopping Cart Fee isn't always applicable, but it is worth knowing for business selling online. If you use a shopping cart or similar e-commerce software, such as BigCommerce, they may charge a fee for using their services that allow you to connect with a payment processor with little work on your behalf.

Interchange++ (IC++) vs Blended Pricing

Interchange++ pricing is a strategy that divides all credit card processing expenses into three components: 

  1. an interchange charge

  2. a card scheme/card associations fee

  3. a processing fee

In contrast, blended pricing combines all these fees, including interchange fees, card association fees, processor charges, gateway method fees, and PCI compliance fees. In this arrangement, merchants will only get a collective fee without knowing the specifics of those charges, which will typically be a 2.3% - 2.9% + $0.30 cost for each transaction.

Pricing structure depending on your business:

As you will have seen, the complexity of mapping all of the Interchange and Scheme fees in your accounting software can be daunting which is why at DNA Payments we offer our merchants the flexibility to be priced in either IC++ or a Blended rate.

If a merchant doesn't have a large finance team, Blended pricing will be easier for a merchant to reconcile the payments as they have fewer line items to compare, whereas larger organisations typically prefer the granularity and have economies of scale (and time!) to negotiate their rates on an IC++ structure.

Conclusion 

At DNA Payments, it is important for us that our clients understand the structure of Payment Pricing that they pay. And if you have any additional questions or would like to learn more about Pricing fees, please contact our team.

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