Any business owner can tell you: credit card processing is expensive. It comes with high monthly fees, steep charges for every transaction swiped and, worst of all, often a long-term contract. But there’s just no way around it; the ability to accept plastic is imperative to success as a business nowadays. Hardly anyone carries cash anymore, and checks are about as extinct as dinosaurs. It’s really all about the plastic. So business owners are left with few choices: pay for processing and hike up costs for the customers to make up for it, eat the costs and watch profits dwindle or not offer card processing at all and risk losing sales from all those plastic-only customers.
Fortunately, there’s another option for business owners; it’s called interchange plus pricing. Interchange plus pricing is a little known pricing system that can allow you to accept plastic without breaking the bank and hurting your bottom line. It’s sort of an industry secret. Card processing merchant providers will rarely mention this pricing to new customers, as it severely cuts into their profit margin. If you’re knowledgeable, though, you can bring interchange plus up in your negotiations and ensure you get the best rates for your company’s card processing.
How to Save Money on Credit Card Processing With Interchange Plus Pricing
There are two types of pricing systems for credit card processing: interchange plus and tiered pricing. Tiered pricing is the most common type and is pretty much all you will hear about when speaking with a processing merchant representative. This type of pricing places credit card types into three different tiers: qualified, mid-qualified and non-qualified. The tier a card falls into determines how much you will have to pay per transaction on that type of card; qualified cards have the lowest rates, while non-qualified have the highest.
To put it into perspective, there are more than 400 types of credit cards out there; 80 percent of these are put into either the mid-qualified or non-qualified tiers, the two highest-priced tiers of this system. Essentially, that means you’re paying the highest per-transaction prices for 8 out of every 10 cards you swipe. Unfortunately, that can add up quick, leaving you with very high card processing bills and low profits.
Interchange plus is a much more affordable system, and one that merchants will typically only offer to big name companies and corporations, ones that do millions in sales every year. Basically, interchange plus is a type of wholesale pricing. Instead of being charged a per-transaction fee that’s determined by your card processing merchant, you pay the wholesale fee that’s determined by the actual card company itself.
It’s a much more affordable and fair system. But this type of pricing cuts into the profits a card processing merchant can make off your transactions, so they’ll rarely bring this up in negotiations with small businesses and companies. You’ll have to specifically ask for interchange plus pricing in your contract.
Card processing doesn’t have to be just another unavoidable overhead cost; by asking for interchange plus pricing, you can offer the convenience of credit card payments to your customers without dipping into your bottom line.
This guest post is provided by Eric Stauffer, who is part of a small business advocacy site that reviews merchant account providers and helps owners with contract negotiations. They also provide a step-by-step credit card processing guide to help business owners negotiate themselves.