Time to Update Processing Plans

If you accept credit cards you know the way you are billed for these transactions is very confusing. Some of the processors are now promoting “new”, “Simplified Pricing Program”. However “new” is not really true it is just an “Interchange Plus” or “Cost Plus” program. Not a problem though it is, in my opinion the best of the pricing programs.

“Simplified” might be a bit of an overstatement as there is no simple way to understand any of the pricing systems. Actually the simplest program is flat fee pricing which is generally more expensive than the other programs because the actual cost to the processors is so complicated depending upon the cards that you accept, how you accept them and your business category. “Interchange Plus” is the best in our opinion as it is the most fair based upon the actual costs of processing credit cards to the processors or “Interchange Fees” and easier to understand. Interchange for most processing plans makes up the largest portion of the fees and is the fee paid to the card issuing banks. You can look up the Interchange tables here.

The important question is how do you compare your old system to the new, the good news is that it really isn’t that hard. The vast majority of businesses being converted to “Interchange Plus” are coming from an “Interchange Differential” program. Comparing the two is actually easy you only need 3 facts:

  1. Your new “transaction fee” %
  2. Your old “transaction fee” %
  3. Your old “non-qualified fee” %

Here is an example of a Visa comparison

  1. New transaction fee is .30%
  2. Old transaction fee is 1.51% (this is what you pay total for “Qualified” transactions which are about 50% of the cards in circulation). Note they are called the same thing but are completely different you might think you fee has dropped when it has actually increased.
  3. Your old “non-qualified” fee is .25%

The result is:

  1. Your “qualified” card that originally cost 1.51% now cost 1.42% (Visa interchange) plus .25% or 1.67% total, an increase of .16%
  2. Your original “non-qualified” fee would have been:
    1. The interchange rate for the card accepted in this example a Visa Infinite card at 1.61%
    2. Plus the difference between the original transaction fee of 1.51% and the qualified Visa rate of 1.42% or .09%
    3. Plus the non-qualified fee of .25%
    4. Total of the old fee 1.61% + .09% +.25% = 95%
    5. The new “simplified fee is 1.61% (interchange) plus .30% or 91% a decrease of .04%

In this case if this is normal business dealing face to face with the general public there would be an increase in rates as cards are split about 50/50 between qualified and non-qualified.  If you are having problems with the above formulas comparing the “Qualified” rates should give you a good idea if you are saving or paying more.

 

For more information visit: www.smallbizassist.ca

Submitted by: Rick Smith President SmallBizAssist, small business consultants specializing in payment processing. 7/1/2018

 

 

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