Interchange Plus Pricing for Small and Mid-Sized Merchants

Navigator Edition: Merchant Acquiring Special Edition
By: Nick Kaw

Interchange plus pricing has long been a staple of large merchant relationships due to the pricing structure’s comparative transparency and competition for these large, stable accounts. In recent years, we have heard anecdotal evidence regarding changes in merchant pricing that suggests interchange plus pricing is becoming more common, even in the small and mid-sized merchant market. With this in mind, we wanted to see if our data would confirm this hypothesis. In 2006, survey data indicated that 48% of merchants with bankcard volume between $1M and $5M were priced on an interchange plus basis (October 2006, “Discount Rate Structures in the Small Merchant Market” by Marc Abbey). Hoping to see whether interchange plus pricing has become more prevalent over the past half-decade or so, we examined recent merchant data from five acquirers. This analysis supports our hypothesis, and Figure 1 shows that the share of merchants priced with interchange plus pricing in that $1M – $5M size segment is almost 20 percentage points higher than 2006, up to 67%.

Figure 1: Percentage of Merchants Priced on Interchange Plus by Volume

Fig-1_-Percentage-of-Merchants-Priced-on-Interchange-Plus-by-VolumeSource: First Annapolis Consulting proprietary research and merchant database.

The increased use of interchange plus pricing among small and mid-sized merchants suggests a combination of increasing merchant sophistication and intensifying competition. Many emerging payment service providers, for example, sell transparent pricing as one of their primary value drivers, which may be pushing traditional acquirers to offer interchange plus pricing on a more widespread basis. In any case, the continued rise of interchange plus pricing reduces acquirers’ opportunities for interchange management revenue and the higher margins that other pricing structures can offer.

For more information, please contact Nick Kaw, Senior Analyst specializing in Merchant Acquiring,

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