There’s a lot to think about when you’re running a business. But one of the most important things to understand is how you’ll be charged for credit card processing. After all, this can have a major impact on your bottom line. Two of the most popular pricing models used by merchant services providers are tiered pricing and interchange plus pricing. Here’s a brief overview of each to help you decide which is right for your business.
Pros and Cons of Tiered Pricing
Tiered pricing is the most common type of pricing model used by merchant service providers. With this model, you pay different rates for different types of credit card transactions. For example, you might pay one rate for credit cards issued by major brands like Visa and Mastercard, and a higher rate for cards issued by lesser-known brands.
There are a few advantages to tiered pricing. First, it’s simple to understand and easy to set up. Second, you know exactly how much you’ll be charged for each type of transaction ahead of time.
However, there are also some disadvantages to tiered pricing. First, it’s often more expensive than interchange plus pricing. This is because the merchant service provider is charging you a higher rate for transactions that don’t qualify for the lower tier. Second, it can be difficult to stay within the lower tiers, which can end up costing you more in the long run.
Pros and Cons of Interchange Plus Pricing
Interchange plus pricing is a newer pricing model that’s becoming increasingly popular. With this model, you’re charged a fixed percentage markup over the interchange rate for each transaction. This means that you’ll always know how much you’re paying for credit card processing, and you won’t have to worry about staying within specific tiers.
There are a few advantages to interchange plus pricing. First, it’s more affordable than tiered pricing. Second, it’s transparent and easy to understand. Third, it’s more equitable for businesses of all sizes.
However, there are also some disadvantages to interchange plus pricing. First, it can be difficult to find a merchant services provider who offers this type of pricing. Second, it can be more complex to set up than tiered pricing. Third, the markup percentage can vary from provider to provider, so it’s important to shop around.
Which pricing model is right for your business? That depends on a number of factors, including the size of your business, the type of transactions you process, and the providers you’re considering. But as a general rule, interchange plus pricing is more affordable and transparent than tiered pricing. So if you’re looking for the best deal on credit card processing, it’s worth considering this option.
No matter what pricing model you choose, make sure you understand the terms and conditions of your agreement. It’s important to read the fine print and know exactly what you’re getting into. By understanding the differences between tiered pricing and interchange plus pricing, you’ll be able to make an informed decision about which is right for your business.