As part of setting up your payment processing account, you are required to select a payment processing model. When signing up for a GuestyPay account with your Customer Success Manager, you will need to choose between the Interchange Plus Plus (IC++) model and the Fixed Rate (Blended) pricing model. By default, GuestyPay offers Fixed Rate pricing.
IC++ pricing offers transparency and potential cost savings, ideal for businesses with high transaction volumes or those looking to optimize costs. However, it requires managing multiple fee components. Fixed Rate pricing provides simplicity and predictability, making it suitable for businesses prioritizing ease of use.
Each model offers unique advantages, and understanding these can help you decide which is best for your business.
Interchange Plus Plus (IC++) Pricing
Interchange Plus Plus (IC++) is a pricing model that provides the most transparency by breaking down the transaction fees into three separate components:
- Interchange fees: These are fees that your bank (known as the acquiring bank or acquirer) pays to a cardholder's (guest's) bank whenever a card-based transaction is processed. These fees are part of the total transaction amount and are used to cover the costs associated with processing card payments and are set by the card networks, such as Visa, Mastercard, and American Express. Interchange fees vary depending on factors like the type of card (credit, debit), transaction amount, the nature of the transaction (in-person or online), country of card issuer, business location, merchant category (industry type), etc.
- Card scheme fees (Network fees): These are additional fees charged by card networks to cover the costs of maintaining and operating their payment networks. The card scheme fees vary depending on factors such as type of card, average transaction value, security protocols, cross-border transaction fees, and licensing fees.
- Processor markup: This is a fixed percentage of the transaction amount plus a per-transaction fee, covering the payment processor's operational costs.
Example of IC++ pricing
If a customer makes a purchase of $100 with a credit card, and the interchange fee for that transaction is 2.5%, the card scheme fee is 0.1%, and the payment processor's markup is 0.2%, the total fee for the transaction would be:
- Interchange fee: $100 x 2.5% = $2.50
- Card scheme fee: $100 x 0.1% = $0.10
- Processor markup: $100 x 0.3% = $0.30
Total cost to merchant: $2.50 + $0.10 + $0.30 = $2.90
However, as mentioned above, both the interchange fee and card scheme fee can vary from one transaction to another, influenced by many factors. Therefore, in different scenarios, these fees may be lower or higher.
Fixed Rate (Blended) pricing
Fixed Rate pricing, also known as blended pricing, is a simplified payment processing model that still covers the three types of fees mentioned above but the cost is a single, consistent rate for all transactions, regardless of the card type or how the transaction is processed.
Example of Fixed Rate pricing
A payment processor will charge a flat rate of 2.9% per transaction. So, if a customer makes a $100 purchase, the merchant would pay $2.90, regardless of the interchange and card scheme fees associated with that specific transaction.
Fixed rate: $100 x 2.9% = $2.90
Total cost to merchant: $2.90
Choosing a pricing model
The choice between Interchange Plus Plus and Fixed Rate pricing depends on your business's specific needs, transaction volume, types of transactions, and preference for simplicity versus cost optimization.
| Factor | IC++ pricing | Fixed Rate pricing |
|---|---|---|
| Transaction volume & size | Best suited for high-volume or large-ticket businesses. | Ideal for businesses with lower transaction volumes or smaller ticket sizes. |
| Transparency | Offers a transparent breakdown of transaction costs, including interchange fees, card scheme fees, and processor markup, enabling merchants to optimize their payment processing expenses. | Lacks transparency, with no detailed cost breakdown, making it harder for merchants to analyze fees. |
| Predictability | Unpredictable due to varying fees based on transaction details and potential adjustments by card networks, leading to unexpected charges. | Predictable with consistent, fixed rates that ensure stable cash flow and reduce the risk of sudden cost spikes. |
| Ease of reconciliation | Complex model that can be challenging to manage due to variable fees, requiring additional resources or financial expertise for effective cost management. | Simple and straightforward, making bookkeeping and financial reporting easier with a flat rate. |
| Costs | Potential for lower costs as merchants pay actual fees rather than an averaged rate. | Potential for higher costs since processors often set rates to cover the highest possible interchange fees, resulting in elevated overall expenses. |
| Budgeting & planning | Difficult for budgeting due to fee variability and changes by card networks (typically twice a year), leading to fluctuating processing costs. | Easy for budgeting, allowing businesses to estimate monthly processing costs with accuracy. |
Choose IC++ if your business processes a high volume of transactions, seeks detailed insight into costs, and can handle the complexity of multiple fluctuating fee components. Choose Fixed Rate if you prioritize simplicity and predictability over cost optimization. It's ideal for businesses with lower transaction volumes or those that prefer a straightforward, easy-to-manage pricing model.
As your business grows or your needs evolve, you can always re-evaluate your pricing model. Partnering with a flexible payment processor-such as GuestyPay-ensures that your payment strategy evolves alongside your business, giving you the freedom to switch models when necessary.