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Interchange++ (IC++) pricing model - would it fit your business?

By Retail Technology | Friday September 4 2020 | UPDATED 07.09.20

Interchange++ is a type of pricing model which is most commonly used in Europe and the United States. This pricing model provides full transparency compared to other pricing types and as a result, offers a lower overall fee for Merchant or Payment Service Provider (PSP), writes DECTA

What is IC++?

IC++ structure refers to a pricing model where the payment acquirer or payment provider will charge a merchant for each card transaction, using a rate consisting of three groups: Interchange fees, card Scheme & technical transaction processing fees, and Acquirer commission. The total sum of these fees forms the final amount that the merchant pays for every card transaction.

Let’s explore each of the three parts more closely.

Interchange fee

The Interchange fee is charged by the Acquirer and the cardholder's issuing bank. There are over 100 variations of Interchange fees which depend on the type of transaction (card-present, card-not-present, online payments, POS payments), merchant industry, the type of the card used (Prepaid, Debit, Credit, Premium, Commercial, etc.), and the registration of the merchant and the card Issuing Bank. The Interchange fee may vary and is starting from around 0,2% in most cases.

Card Scheme & technical transaction processing fee

The “++” in the IC++ pricing model is a card scheme fee and the cost of technology (technical transaction processing cost). This fee is charged by the Acquirer and the International Payment Systems (e.g. Visa, Mastercard) for using their network. The fees set by Visa and Mastercard are regulated in some countries and are typically lower compared to Interchange. The range of the fee depends on the type of transaction, a region where the card Issuer is located, and other factors. In case of Mastercard or Visa, merchants know they are paying for quality, trouble-free operation, and the ability to attract consumers from literally any country of the world.

Payment Acquirer margin

The fee “%”, which goes after the IC++ (ex. IC++ 0,2%), is the actual margin of the specific payment Acquirer, collected to process the payments. In case of IC++ fee structure, the payment Acquirer is openly showing their costs (IC++) towards 3rd parties and their margins, so the merchant may see the real fee that goes to the Acquirer’s pocket to process the payment.

Example:

A person from Italy uses his EU based Issuer Bank’s consumer debit card in order to make a purchase of 100EUR in a European internet store. The payment acquiring fee set by Acquirer towards merchant is IC++0,2%

 

IC (Interchange fee)

++ (card Scheme & technical transaction processing fees)

0,2% (Acquirers margin)

Cost of Acquirer

Cost of Acquirer

Acquirer commission

100*0,2% = 0,2 EUR

100*0,27%+0,08 EUR= 0,35 EUR

100 Eur * 0,2% = 0,2 EUR

Total fee for the Merchant: 0,75 EUR

 

 

Benefits of using IC++ 

 

  • IC++ is the most transparent pricing model, which allows merchants to see and analyze all their card payment processing fees. For example, if a merchant notices that some of the consumers pay with debit cards which are charged a lower Interchange fee than credit cards, it can encourage clients to use this specific payment method;
  • This is the most cost-effective pricing model because merchants pay certain fees;
  • This pricing model eliminates the hidden fees because it openly shows merchants and PSP’s all components of the commission applied by the Acquirer. They can see thedifference between the interchange fee charged and the mark-upcharged by their payment Acquirer.

Since each card processor can choose how they are going to charge merchants, businesses should dedicate some of their time and do some research to learn which acquirers/payment processing companies are worth working with.

Choose DECTA to be your secure payment provider and switch to an IC++ pricing model. We offer reliable financial services to our customers all around the world.

This article was sponsored by DECTA.

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