Users often ask me how to tell an interchange plus quote from a tiered pricing quote.   First, some background:

• Interchange is the wholesale rate your processor pays Visa and Mastercard (and is not negotiable)
• Interchange plus pricing is the best way to ensure you are not getting ripped off because it is completely clear how much of a markup the processor is making on your business
• Tiered pricing is prone to abuse because the “downgrade” rates (which are much higher than the quoted rate) are not always disclosed and the precise rules of what triggers a downgrade are never disclosed (processors freely admit that they make more money this way by confusing customers)

Interchange plus:

An interchange plus quote will sound like “interchange PLUS 0.20% PLUS $0.20″ – that’s why its called interchange plus.  The PLUS part is the markup that the processor is making on top of interchange.  It will always be less than 0.50% of your volume and $0.30 per transaction, anything more than that is way too high.  What they are quoting you is the markup.  On average interchange rates are about 1.77%, but it does vary depending on what kind of cards your customers use, your average ticket size and the type of business you are (for example, the average rate for ecommerce interchange rate is higher at around 2.06%).

Tiered:

With Tiered pricing usually just one price is quoted (called a qualified rate).  It will always be more than 1%.  For example they will quote 1.6% or 2.3%.  What they do not tell you is that ALWAYS, there is something called a downgrade, where a large portion of your transactions will be classified as a Midqualified or Nonqualified rate.  Often, the salesperson will not tell you about those rate unless specifically asked – they count on making most of their money by marking up those rates really high and you not paying attention.

It is very hard to compare one tiered pricing plan to another, because even if the qualified rate, nonqualified rate and the midqualified rate are the same, the rules about which transactions fall into each category can be different. 

Everyone should avoid Tiered pricing (and its more evil cousin ERR pricing — http://feefighters.com/blog/2009/10/09/enhanced-recover-reduced/). 

But, if for some reason you do not, here are some questions to ask to make sure you are getting the full story on the quote.  Let’s say that they quoted you a 1.6% rate.  Ask them:

• 1.6%, does that apply to every single transaction?
• What about a rewards card?  How much is that?
• How about a business card?  How much is that?
• What happens if the customer calls in the order and doesnt sign the receipt?  How much does that cost?
• What about debit cards, I know that debit cards have a lower interchange rate (even when the customer doesn’t type in the PIN), so shouldn’t I be getting a lower rate for debit cards?

Asking those questions will help you get a more fair deal, but the only way to be entirely sure you are getting the best deal is to get interchange plus pricing from a reputable processor that is FeeFighters certified.