We discussed Interchange in one of our previous blog posts, and now let's take this topic further and find out what Interchange Plus pricing mode stands for and how it can save you money compared with the traditional blended or flat payment fees, offered by PayPal, Stripe or Square.
Interchange Plus is a new, transparent, and straightforward pricing model which helps merchants to save much money on payment fees. Basically, it means that a payment company adds a small fixed markup on top of the underlying Interchange fees, which makes this pricing much fairer for the merchant.
Interchange is a ubiquitous commission fee charged by the global card networks at every card transaction. Those networks, as you surely know, are Visa, MasterCard, American Express, Discover, and also Union Pay if you happen to do business in China. The rate of Interchange varies wildly depending on the multitude of factors which we also discussed in our earlier blog post.
Now, if you are processing your payments with PayPal, Stripe or Square, you only know the flat rate they charge you, and it is usually something like 2.9% plus 30 cents per transaction. Simple, straightforward, and transparent, they say.
The truth is, you are overpaying A LOT of your hard earned money when using such a rate, while those payment companies are hiding the Interchange inside of it on purpose.
The average Interchange rate on card transactions that a usual US retailer would see during his typical business day is running between 1.6% and 1.8%, and it means the likes of Stripe and Square are charging you a fat 1% on top of their costs, on every transaction! Not too shabby.
Moreover, we are just getting started here. Those payment companies also charge you an additional 30 cents on every transaction, when eats a few more percentage points when your transaction amount is not huge. So their 1% margin can quickly become 2% or even 5%.
Also, here is another shocking fact about the payment industry and their flat rates. Did you know that about 30% of all card payments in the US with made by a debit card? Did you know, that the Federal Reserve strictly limits debit card payment fees at 0.05% plus 21 cents per transaction? It means, about a third of your card payment volume carries a cost of just 0.05%, and you are paying the full 2.9% for it? Which is almost six times of pure profit for PayPal, Stripe, and the likes of them!
Luckily, these old payment companies are now on the verge of disruption with the new generation of startups like Ruby coming in loud and bringing the latest and fair pricing model with them – the Interchange Plus rates.
What that means, is that you are paying only the actual cost for each of your card transactions, whether it is just 0.05% plus 21 cents for debit or a 2.4% plus 8 cents for a premium reward platinum black super-exclusive credit card. You can see it all transparent and clear in your transaction statement, with all the charges grouped by the card type for easy understanding. There’s no hidden 300% markup on it, and you know for sure what you are paying and for what.
Of course, even the new and ethical payment companies like Ruby needs to make money. However, in the case of the Interchange Plus pricing model, the Plus part takes care of it. It means there is a small markup on top of your Interchange rate, which you know about upfront. In the example of Ruby, the Plus starts at just 0.05% and 5 cents on top of the Interchange.
So considering our previous example, for the debit card transaction your total rate will be just 0.1% plus 26 cents! Just compare it with the 2.9% plus 30 cents on the Stripe’s flat rate and think about how much money you could save even in one day. Further, what about a whole year of business? That’s thousands and thousands of dollars.
That is why the Interchange Plus pricing model is so hugely important innovation for every business in the US. It will literally save you a ton of money, that you can use to invest in your business or to pay for a college for your kids or simply pass those savings as the lower prices for your customers. It’s great to have such a choice.
One of the most common questions we get all the time is, how would you know your exact fees upfront? The answer is you can’t. However, it is for sure will be miles away from what you are paying now to the Stripes of the world simply because there’s no 3x markup inside our Interchange Plus rates. The only case when the flat fee will be beneficial if you were taking payments by the overseas American Express cards whole day long.
In truth, we have seen a few merchants like that, but it’s a rare case with a very particular type of business. Still, if you are a regular business, selling your products and services, in-store or online, you can’t go wrong with the Interchange Plus.
Try it and see how much you will save in your first month of trading with Ruby, and if you are not happy – there is no contract or any cancellation fees, and you can switch back to where you were before at any time. Though, we are pretty sure that you won’t ever go back to paying thousands to those flat rate payment processors.
Thanks for reading, and don’t forget – we are always in the online chat at Ruby website. Please talk to us if you have any questions!