All About Pass-Through Merchant Pricing

Welcome to the final blog in our three-part back to basics series where we’re reviewing how credit card fees are calculated and exploring the most common pricing structures offered by Merchant Services Providers.  If you missed our first article exploring tiered pricing or second article on flat rate pricing, we recommend giving these a quick read before diving in. Enjoy!

For many businesses, credit card transactions represent a huge portion of sales. Over the years, pass-through pricing has becoming increasing popular with merchants looking to understand their true cost of credit card acceptance.  Here’s how it works.

What is Pass-Through Pricing?

Pass-through pricing also known as interchange plus is arguably the most transparent pricing methodologies but it’s also one of the most complex for merchants to understand. Under this structure, merchant services providers pass through actual wholesale interchange rates to customers, charging a fixed margin (discount rate) and transaction fee above interchange.  (The discount rate and transaction fee are consistent across interchange categories.)

The Pros and Cons of Pass Through Pricing or Interchange Plus

There are definite advantages for merchants using interchange plus pricing, especially if you are a merchant with high transaction volumes. With pass through pricing, instead of lumping all transactions together with a single fee or tier (such as a flat fee structure or tiered pricing structure), interchange plus pricing lets merchants pay less when the interchange rates are lower. Pass through pricing also allows merchants understand the exact margin (markup) their provider is making off their account.

Although there is no true disadvantage to this pricing structure, as in the end, it’s the most economical option for merchants, there is a perceived disadvantage—the unknown.

Unlike with flat rate pricing, where merchants can easily predict their monthly credit card acceptance costs through simple math (average monthly volume multiplied by flat rate processor fee), it’s impossible to predict what types of cards will be presented for payment and what wholesale interchange rates those cards will carry, making credit card acceptance costs seem more like a mystery each month.

How to Make the Best Decision for your Business

Paragon proudly offers merchants pass through merchant pricing as well as other pricing structures.  To find the right fit for your processing environment, or for a complimentary statement analysis or rate quote, contact us today.

For software providers, choosing a flexible payments partner who offers a highly customizable approach allows you to provide customers with the best solution possible while monetizing your payments program in the process.