Should You Sell Tier or Interchange Plus Pricing?

When I first started selling merchant services, the company I was with sent me pre-filled applications that already had 4 Tier Pricing in place. This was actually a big help since I had no idea what I was doing and we do the same thing for new sales partners who come to us today. However, our goal is to educate our sales partners through our 5 day live training program, so that they fully understand statements, cost structures and how these impact their clients and their personal income. In this short blog post today, I just want to shed a little light on which cost structure you should use for your clients.

Every merchant processing $20,000 or more in volume should be on Interchange Plus pricing in my opinion. The reason is that these larger merchants deserve the transparency to know how much of their fees are costing the processor and how much of their fees are mark up. Also, because the interchange fees are “Pass Through” it allows the merchant to take advantage of any changes in the industry that would be a benefit to them such as the Durbin Amendment that came down a while back.

If the merchant is processing less than $20,000 in volume my advice is to keep them on the same cost structure they already have. Although we do have more experienced sales people who prefer to always use Interchange Plus pricing, it is usually easier to make a pitch to someone if you simply keep them on the same cost structure they already have and lower the rates. In other words, it is easier to pitch, “I kept you on Tier pricing but lowered your qualified and mid-qualified rates to X” than it is to explain, “We are changing you from Tier to Interchange Plus pricing and you should save around X” because this second pitch is tough to prove using a cost analysis.

Lastly, I never use 3 Tier pricing which is also called “Bundled Rate” Tier Pricing. This means you provide your merchants with one combined “Bundled” qualified rate for check and credit cards rather than 4 Tier or “Split Rate” pricing where you provide a lower qualified rate for check card transactions and a higher qualified rate for credit card transactions. 4 Tier Pricing makes a lot more sense because check cards are significantly cheaper for the processor to complete for an average or high ticket size merchant.

With the constant changes in Interchange Rates, I like to use 4 Tier pricing for two reasons. First of all, it is usually a much better deal for the merchant, since many of the retail / food services businesses we sell, process more check cards than credit cards. Secondly, it evens out my residual income. If you price on a bundled rate and your client has a month where they process more credit cards than usual, it will hurt your income and if they have a month where they process more check cards you will make a lot more. I prefer to have a nice steady residual income stream.

Have a great day!
James Shepherd