Interchange Plus Pricing: Looking At The Total Picture
As the availability of the more transparent and less expensive interchange plus pricing continues to spread, it's important to remember that there's more to a great merchant account than one rate.
The tiered model is currently the most widely used form of merchant account pricing. Merchant account providers like this model because merchants focus on getting an account with the lowest qualified rate when most transactions run at the higher mid and non-qualified rate tiers.
It's an unfortunate side effect of too much sales pressure and not enough unbiased information for merchants. Once you take the time to learn a little bit about merchant accounts and how all pricing models are based on interchange, the shortcomings of tiered pricing become readily apparent. Unfortunately, it's not that easy and most business people don't know that they've got to look beyond what their sales representative is telling them in order to get a fair deal on a credit card processing.
The hype surrounding interchange plus pricing is starting to reveal some unsettling parallels to the mislead focus of getting the lowest qualified rate on a tiered account. Just as a low qualified rate doesn't guarantee an inexpensive merchant account – simply getting an account with interchange plus pricing doesn't mean that account will be competitive.
There's a lot that goes into a credit card processing, and there are many different ways that merchant service providers can hide expenses. For example, merchant accounts with cancellation fees are often labeled as poor choices. What if an otherwise competitive merchant account was given a cancellation fee as a trade-off for the merchant getting a free terminal? In an arrangement like this, the merchant service provider would need to protect themselves from the merchant taking the free terminal and cancelling the merchant account a few weeks later.
Another hidden cost may come in the form of annual fees or monthly fees like a statement or customer service fee. A merchant service provider can easily quote a merchant an interchange plus merchant account at something that looks very competitive, let's say only 5 basis points above cost, and then turn around and add a $100 annual fee, a $10 monthly statement fee and a $5 customer service fee. These secondary fees would negate any savings from the low interchange mark-up.
One of the most important things to do when you're looking for a competitive merchant account is to consider the big picture. You need to look at every costs associated with the account that you're being offered, and avoid being blinded by a single low rate or fee.
This article to help businesses get a cheap merchant account and more helpful information about merchant accounts and interchange plus pricing is available at MerchantCouncil.
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