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17 January 2023

The cost of taking payments online – payment pricing models explained

Gain a clear understanding of the different pricing structures Till offers, where the money goes, and what you get for it.

Every time a business takes a payment via credit, debit or the growing number of other cashless options, it pays some kind of processing fee.

Called a Merchant Fee, this is the fee the merchant pays to have the transaction processed by a Payment Services Provider

This article explains:

  • What is a Payment Service Provider?

  • What is the Merchant Service Fee (and what is it comprised of)?  

  • The different pricing models applied by payments processors

A Payment Service Provider (also known as a PSP, or Merchant Services Providers) is a company that help merchants accept payments. PSPs help merchants accept a variety of online payment methods by connecting them to the wider financial system.

When a payment service provider processes a transaction on behalf of a business, they charge a Merchant Service Fee. This Merchant Service fee is a combination of 3 different charges: 

- 1. A fee from the cardholder's issuing bank. This is called an Interchange Fee and can vary greatly depending on the card.  The PSP passes on this fee to the cardholder’s bank.

- 2. A Scheme Fee. This is the fee charged by the ‘Card Scheme’, Visa, Mastercard, Amex or JCB. The PSP passes on this fee to the relevant Card Scheme that issued the cardholder’s card.

- 3. A Processing Fee (also known as an Acquirer’s Fee). This is the fee the PSP charges for handling the overall transaction. This is the only part of the part of Merchant Service Fee the Payment Service Provider (such as Till) keeps.

Where does the money go?  As you can see in this diagram, a payment Service Provider like Till keeps only a fraction of the Merchant Service fee.  

Different pricing models applied by payments processors

In general terms there are three different models of pricing applied by Payment Service Providers.

With Flat Rate Pricing, the merchant pays a flat rate, normally a fixed percentage and possibly an additional flat fee built in (such as $0.10) per transaction. Flat-rate pricing models are simple to understand, making it easy for the merchant to read their statements, and predict their monthly payment costs.

With Interchange Plus Pricing, the Interchange Fees and the PSP’s fee are show separately. Merchants can quickly identify interchange costs versus processor markup, making it easy to compare rates charged by different PSPs.

With Tiered Pricing, transactions are charged at 3 different rates by the processor, with transaction allocated to qualified, mid-qualified and non-qualified tiers. Qualified transactions are the cheapest, with rates rising for mid-qualified and non-qualified. Tiers may be allocated based on whether cards are dipped, swiped, keyed in, or not present (online or over the phone).

While Tiered Pricing statement are easy to read, it’s impossible to separate interchange and PSP charges. Three different tiers also make it difficult for merchants to predict monthly payment processing costs.

While different pricing models suit different businesses, it always pays to avoid hidden fees and choose a provider who offers transparency.

In the interest of both simplicity and transparency, Till offers three different pricing structures: BlendedInterchange + and Interchange ++.   

Pricing Model 1 – Blended

In this model, the interchange fee, scheme fee and Till’s processing fee are blended into one all-inclusive rate.

The advantage of this pricing model is simplicity – you see a single fee per transaction, making monthly statements or Merchant Portal breakdowns easy to read and understand.

Pricing Model 2 – Interchange +

In this model, the Merchant Service Fee (MSF) is broken into two elements (see image on the right)

The advantages of this pricing model are transparency and the fact it helps facilitate cost recovery.

With this model, you can see how much card schemes and your payment provider are separately charging you. With this knowledge, you can offset these costs by applying a surcharge to every transaction.

Pricing Model 3 – Interchange ++

Interchange ++ goes one step further, breaking the Merchant Service Fee (MSF) into three elements (see image on the right)

The advantages of this pricing model are the same as Interchange + but with even greater visibility. All three fees are detailed separately on your monthly statement. This model is helpful for businesses with high transaction volumes.

By making it possible to recover various fees, Interchange + or Interchange ++ models can result in lower costs for your business.

What do you get for the processing fee you pay Till?

Different payment companies have different pricing methodologies. Till is no different.

But what is different about Till is what you get for the money.

With Till, you get a powerful payments ecosystem that surrounds, protects and supports you in many ways – an ecosystem built to automate processes, engage new customers, and transform the way you do business. With all of the following:

Want to know more?

Touch base with Till here, And start making every payment pay with a pricing model that works harder for your business.