ISOs looking for a "silver bullet" pricing model should stop looking and focus on the individual merchant's needs, John Rante, chairman and CEO of BluePay Processing LLC, asserted during a session at last month's Midwest Acquirers Association conference in Lombard, Ill.
The most-successful pricing model for winning business "depends on the size of the merchant" and the types of transactions the merchant sees, Rante said. "As merchants get larger, you're going to have a hard time not pricing them at interchange-plus."
Typically, merchants with larger transaction volumes benefited from this pricing model, observers note.
With interchange-plus rates, ISOs typically charge merchants the interchange rate for the type of transaction plus a specific basis point amount above that rate, and may include a per transaction fee, too. A basis point is one-hundredth of a percentage point.
Merchants may like this model because it means transactions are not grouped into a tiered pricing model and the merchant pays the appropriate rate for the type of transaction. Tiered accounts may have as many as 12 rate categories, according to MerchantCouncil.org, a Web site about processing services.
Tiered models, often consisting of qualified, mid-qualified and nonqualified rates, attempt to funnel a transaction into one of these categories based on how the merchant service provider defines the categories. That can make it difficult for a merchant to know the exact rates for a transaction.
Merchants on interchange-plus schedules, however, may find themselves paying an "enhanced recovery reduced" rate assessed by an ISO. BluePay, on its Web site, defines this rate as a "surcharge applied to any transaction that fails to quality for the anticipated discounted interchange program" as defined in the ISO's service fee schedule.
"Enhanced recovery reduced" rates are common enough that John Mayleben, who oversees an ISO operated by the Lansing, Mich.-based Michigan Retailers Association, said at the conference retailers sometimes are confused by them.
Sometimes the trigger for the enhanced recovery reduced rate is unclear, he said, noting he would rather know what that trigger is to help prevent it in the future.
"If you're not showing them the information on how to get a better rate, they're going to take it out on you," Mayleben said. Any merchant concerns over their specific rates also may feed into the overall retail community's attitude toward interchange and fees for accepting credit cards.
Asked whether the current interchange system, with rates for different cards, such as corporate or rewards cards, helped the payments industry, BluePay's Rante decidedly said his experience has shown that payment acceptance helps a merchant's overall sales.
"In the long run for the merchant, it helps because the average ticket size goes up," Rante said.
Mayleben, however, while not divulging anything the audience previously did not know, said retailers are flummoxed by interchange and how the rates are determined. "Retailers clearly feel they have no say in the matter," he said. "Smarter retailers have figured it out."
Generally, large retailers, such as Wal-Mart Stores Inc. and Target Corp., receive lower interchange rates than small merchants do because of the volume of transactions they handle.