The markup over interchange and assessments is the only area where you can negotiate credit card processing costs. Keep in mind that many factors contribute to the markup, so not everything will be negotiable, or it will only be negotiable to a point.

Furthermore, the markup isn't all profit. it's split among all of the organizations that facilitate the processing of your business's transactions such as the acquiring bank, processor, ISO(s), gateway or software provider and others. The markup must cover cost as well as profit for these entities.

Markups differ significantly from one processor to the next both by amount, pricing model and the types of fees charged. These inconsistencies are why it's difficult to accurately compare credit card processing on the open market. Here at Merchant Nation Association we dictate the pricing model that processors must use to ensure fair, competitive pricing that can be accurately compared.

Pricing Model

Interchange and assessments are the same for all processors. The method the processor uses to pass these costs to you is what is important. The two most basic types of pricing are interchange plus and bundled. They're also referred to as pass through and tiered, respectively. Each pricing model is outlined below, and there's also a detailed post comparing interchange plus vs. tiered pricing here.

Interchange Plus or Pass Through

With interchange plus pricing the processor's markup isn't dependent on interchange qualification. This separation of costs keeps the processor's markup the same regardless of the type of card you accept, or how your process it. There are no qualified, mid-qualified or non-qualified rates with interchange plus.

The processor earns a fixed percentage regardless of the underlying interchange. For example, 0.25% is an example of an interchange plus rate quote. No fancy tiers, not qualification at the processor level -- just one simple rate that gets added to actual cost (interchange).

Interchange plus allows for interchange credits on refunded transactions. For example, when you issue a customer a refund, you are supposed to receive a partial credit of the interchange fee paid on the original transaction. This refund credit is not issued on bundled pricing models, but processors are capable of issuing interchange refunds on interchange plus pricing. However, just because a processor is capable of issuing interchange credits doesn't mean it will.

Tiered or Bundled

Tiered pricing, also referred to as bundled or bucket pricing, is named for the way a processor categorizes interchange fees into three pricing tiers called qualified, mid-qualified and non-qualified. Although three tiers are most common, this pricing model can have separate sets of tiers for various types of cards. For example, six-tier pricing where credit and debit cards each have their own three tiers is gaining in popularity.

On a bundled pricing model the processor uses something called an interchange qualification matrix to route interchange fees to the qualified, mid-qualified, or non-qualified tiers.

A big problem with tiered pricing is that interchange fees are often not disclosed on your merchant processing statement (although they sometimes are), and the processor doesn't tell you into which tier individual interchange fees are being routed. This leaves you with no way to calculate exactly how much you're paying above the actual processing costs of interchange and assessments.

Tiered pricing has played a big role in building the processing industry's shady reputation.