Demystifying Payments (Part 1: Pricing)
Payments are the lifeblood of commerce and knowledge of the basics can give you an edge when negotiating and setting up agreements that work for you, instead of against you.
These blog posts will be a short series on the basis of payments for merchants.
When it comes to pricing there are three different kinds which all work in your favor depending on the kind of business you have. Most often than not, statements sent to merchants might as well be written in a foreign language. That’s because complex pricing makes it easier to sneak hidden fees in.
All processors (also known as Merchant Service Providers, ISOs, Sub-ISOs, etc.) have the same base cost to pay to provide you processing. These include interchange, which has over a hundred categories, bank fees, etc. This means that anything they charge over the same base cost is profit to them.
There are typically three different ways a processor can charge you:
1. Flat-out pricing: Think Square, or Nouvo (us). If we agree that a rate of 2.50% is fair, then that means that you will pay us $2.50 out of every $100 paid out to you.
2. Interchange Plus: They will look at interchange tables and agree to charge “x amount” over interchange. Pricing changes depending on the category of the card. Ex: .10% + 5c over interchange may be equivalent to 1.80% + 7c or 1.5% +5c. The prices for each payment will vary widely due to how many interchange categories there are.
3. Tiered Pricing: This is the one you really have to be careful about — processors will create three buckets for all interchange fees: qualified, mid-qualified, and nonqualified. This might sound like it makes it easier to understand pricing, but processors are free to define the brackets however they like! We have seen merchants paying as much as 4.00%+ on average per transaction. Some don’t even realize it.
When negotiating payments for your business, it is important to know what you are paying. Stay informed. Be sure to tune in next week, when I’ll be discussing equipment and software.
Check out www.nouvo.io/business for the most unique payment solution you’ll ever find. Contact me at isaac@nouvo.io if you have any questions.
