Selecting the right credit card pricing structure can be a daunting task, especially when faced with terms like "interchange" and "surcharging" that can add complexity to fee comprehension. This article aims to simplify these concepts, providing you with a clear understanding to make an informed decision that best suits your business needs. There are three primary pricing structures for credit card fees: Flat-Rate, Interchange Plus, and Merchant Surcharging. Let's delve into each of them!

  1. Flat-Rate:

  2. How it works: In a flat-rate pricing structure, the merchant pays a fixed percentage and sometimes a fixed transaction fee for every credit card transaction processed. This pricing model is simple and easy to understand, making it popular among small businesses and startups.

  3. Key Point: Although flat-rate pricing is simple to understand, merchants with a flat rate pricing structure will typically pay more in credit card fees

  4. Interchange Plus:

    • How it works: Interchange Plus pricing breaks down the cost of a credit card transaction into two parts: the interchange fee set by the card networks (Visa, Mastercard, etc.) and the processor's markup (a percentage of the transaction amount and sometimes a per-transaction fee). Merchants pay the actual interchange fee plus the processor's markup.
Key Point: Interchange-plus pricing can be a little more difficult to understand, but merchants using this pricing structure generally pay lower fees overall

  1. Merchant Surcharging:

    • How it works: Merchant surcharging involves passing the credit card processing fees (interchange fees and the processor's markup) directly onto the customer by adding a surcharge to the transaction. This means that the customer pays an additional fee for using a credit card.

    • Lets take a look at some of the advantages and disadvantages of Merchant Surcharging
  • Advantages:
  • Merchants don't have to think about credit card fees as much when designing their product offerings
  • Fees are passed directly to the customer and are never handled by the merchant

  • Disadvantages:
  • Legal and Regulatory Considerations: Surcharging is subject to legal and regulatory restrictions in many jurisdictions. Some regions or card networks may prohibit or limit surcharging.
  • Since not every card can be surcharged, the merchant will have to pay some fees. This includes all debit cards
  • Each point of sale must have posted disclosures that the customers card will be surcharged
  • Many customers do not like seeing the fees on a seperate charge on their credit card statement

Key point: Most fees for credit cards are passed directly to the customer, but the rapidly changing legal landscape and the requirements can also be a lot to keep up with