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The Ins and Outs of Interchange++ Fees and Card Pricing Models

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[3-minute read]

If you’re running an online business, you probably process a large amount of card payments every day. You might wonder what are you paying for, and how are card processing fees calculated? 

Acquirers charge fees according to different pricing models. They generally use two models to calculate these fees. They are the blended rate model, also known as the  MDR model, or the Interchange++ (IC++) pricing model.  

  • Blended (or MDR) pricing models apply a fixed percentage of the transaction amount value. The percentage covers all interchange, network dues and assessment fees. The up and downsides of this model is that it protects you from cost swings and the variety of cards used, because they each have their own associated costs. The downside is that you won’t benefit from savings either. 
  • The IC++ pricing model is available for payments made through Visa and Mastercard. It’s generally more transparent than the other models because it shows a more detailed breakdown of the costs. (See what the ++ stands for below). 
Let’s have a closer look at the IC++ pricing model and how it works. 

Under the  IC++ pricing model, businesses pay for every debit or credit transaction they complete. Fees vary from transaction to transaction and bank to bank and can sometimes be very difficult to calculate. 

At Truevo we want to ensure that you have all the information you need to calculate your costs. Let’s have a look at all the factors that affect interchange++ fees and how Truevo calculates these fees. 

What is an Interchange++ fee?

Every time a business completes a transaction via a card scheme (either Visa or Mastercard), the acquiring bank or acquirer, pays the cardholder’s bank an interchange fee. The business then pays the interchange fee back as part of its card processing fees. 

Processing any card payment involves three fees:

  • Interchange fee – Charged by the cardholder’s bank 
  • Card scheme fees – The card scheme charges this fee for using its network (first +)
  • Acquirer’s markup – The acquiring bank charges this fee for acquiring the funds from shoppers (second +)

Of the three fees, the interchange fee is normally the largest. 

How much are IC++ fees?

In the EU & EEA, interchange fees are regulated and are capped at maximum 0.20% for consumer debit cards, and maximum 0.30% for consumer credit cards. Other cards such as business cards may have higher interchange fees that can sometimes be as high as 1.50% or even 2.00%.

Card schemes like Mastercard and Visa determine their fees. These fees are non-negotiable. 

Truevo holds transparency in high regard and publishes our scheme fees for merchants on the IC++ pricing model on the Truevo website

How are these fees calculated?

Various factors influence how these fees are calculated. It all comes down to how much risk is involved in the transaction. 

  • Different card fees are charged by different card schemes. A customer paying with a Visa card will be charged different fees compared to one paying with a Mastercard 
  • Card-present (CP) vs card-not-present fees (CNP). CP fees, or face-to-face fees, are generally lower than CNP fees because the risk of fraud is lower when the person is present when they make a payment. 
  • Credit vs Debit cards. Credit and deferred debit cards carry a higher risk than immediate debit or prepaid cards, so their fees are normally higher. 
  • Merchant Category Code (MCC). You might pay lower interchange fees if you are classified as a charity, travel agent, streaming service etc. 
  • Consumer vs Commercial. Individuals pay lower interchange fees than businesses. 
  • Regions of the transaction. Transactions that are done in the same region, where the business is in the same country as the card-issuing bank, carry a lower interchange fee than cross-border transactions. 
IC++ vs Blended pricing

The IC++ pricing model has its advantages, such as transparency, and you are sure that you always pay the same margin to the Acquirer, and there are no hidden costs. The disadvantage is that at the moment of the transaction you don’t know in advance what the costs will be, and that it is more often difficult to reconcile your costs.

The blended pricing model charges an average processing cost plus a fixed markup. Merchants are charged the same end price irrespective of the type of transaction. You can’t see how the costs are split either. This model might be easier to understand and has advantages if you’re looking for simplicity and knowing your costs in advance. 

European Fee regulation 

In 2015 the European Economic Area (EEA) introduced interchange fee regulation. It meant that interchange fees are heavily regulated resulting in some of the most competitive fees worldwide. 

If you’re a merchant operating in the UK or EU, have a look at Truevo’s transparent scheme fees here, you won’t be disappointed. If you’d like to find out more, get in touch with us here. We can’t wait to help you get paid and help you save on fees.

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