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Blended Pricing vs Interchange Plus (IC+) Pricing

Blended pricing and Interchange (IC+) pricing are fee structures offered by payment processors to merchants. These pricing models differ in the way they charge and communicate the three main elements of the merchant service charge (MSC):

Acquirer markup: This is charged to the merchant by the acquirer to cover their profit margin and costs (This is a variable cost, that Merchant Savvy can help you negotiate).
Interchange fee: This is charged by the cardholder’s (customer’s) bank and is the most significant chunk of card processing fees. This is fixed and non-negotiable.
Card scheme fees: As the name suggests, this is charged by the card scheme (that is, Visa, Mastercard, Amex, etc) to cover network dues, assessment fees, cross-border fees, clearing fees and settlement fees. This is fixed and non-negotiable too.

You can find more information about these three elements of the MSC and additional fees you may incur in our guide to card processing fees here.

The pricing model reflects which of the elements above are transparent to merchants and passed on at cost price.

Blended pricing (otherwise known as standard pricing) is the most common pricing model offered by payment processors.

95% of merchants in the UK are on blended pricing and 98% of those with annual card turnover below £10 million.

In this guide, we’ll look in detail at blended pricing vs interchange plus.

Blended vs interchange plus pricing (IC+) explained

When a card payment is made, various fees flow between you and your payment service provider (PSP). How these fees are presented to you is dependent on the pricing model.

Blended pricing

A blended pricing model is where all processing costs associated with each transaction are bundled into one fee called the Merchant Service Charge (MSC). You can think of these fees — interchange fees, scheme fees and markup fees — as being ‘blended’ together and displayed back to you, the merchant, as a set, fixed percentage.

Interchange+ pricing (IC+)

The Interchange+ pricing structure takes the total fees due and breaks them down into two elements: the markup fee plus the interchange fee. This doesn’t mean you pay more, it’s just that the breakdown of fees is communicated in a different way.

With IC+ pricing, only interchange fees are automatically passed on at cost to the merchant.

In fact, IC+ pricing can sometimes result in lower overall fees for merchants as the interchange fee can vary depending on the transaction.

Interchange++ pricing (IC++)

When researching interchange fees, you’ll also come across interchange++ pricing. Here, all fees associated with each transaction are broken down: the interchange fee, the acquirer markup and the card scheme fees.

As previously mentioned, 95% of merchants are on blended pricing and IC+ and IC++ will typically only be offered to large merchants with over £10M in annual card turnover. Only around ⅓ of these large merchants have IC+ or IC++ pricing and they are typically those with over £50 million in annual card turnover.

With IC+ and IC++ pricing, the payment processors compete for new business on the processing fee alone (i.e. acquirer markup) as they are contractually obliged to pass on the interchange and the scheme fees from card networks at cost price.

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Is blended, IC+ or IC++ pricing best?

Now that you have the basics of the three interchange pricing models, let’s look at the benefits and drawbacks of each approach.

In theory, the total fees you pay shouldn’t differ from blended pricing to interchange plus and interchange plus plus. However, when card-issuing banks like Visa and Mastercard choose to increase or decrease their fees, you could end up paying more (or less).

It’s because of this potential flux in fees that many merchants prefer interchange plus and plus plus pricing — the transparency of knowing what you’re paying broken down offers increased visibility and trust.

	Pros:	Cons:
Blended pricing	Displayed as a fixed percentage, blended (or standard) pricing is arguably easier to comprehend and plan for as there are fewer variables involved.	The flip side of that fixed percentage is that blended pricing is more opaque. It’s easier for acquirers to conflate their fees and earn more profit.
IC+ and IC++	IC+ and IC++ offer the merchant greater transparency over the fees they are being charged, meaning they can clearly see the margin/profit the PSP makes	IC++ is a passthrough model and therefore subject to cost swings.

Blended pricing vs fixed pricing

There’s a fourth and final approach to interchange pricing that we’re yet to cover: fixed pricing.

Much like the blended pricing model, a fixed agreement presents your rates and fees as a fixed percentage of the transaction value.

The fixed nature of this pricing model can make it an expensive option. With fixed pricing, your PSP gets to define which tier (qualified, mid-qualified and non-qualified) your interchange pricing falls into. Since interchange categories are bundled on this model, you never know if your PSP has overcharged you by routing your interchange fees to the more expensive mid-qualified or non-qualified categories.

Fixed pricing is offered by payment facilitators like Square, Sumup and Zettle which have fixed fees ranging from 1.69% – 1.75%. Unless you are a nano merchant turning over less than £25,000 annually in card payments you are likely to make significant savings by using a payment processor that uses blended or IC+ pricing.

How to secure the best payment processing fees for your business

Obviously, fees are unavoidable in accepting card payments from customers, but there are ways to secure lower card processing fees.

At Merchant Savvy, we are able to use our buying power and industry knowledge to secure highly competitive card processing rates from acquirers. If you would like to see what rates we can secure for your business please fill in fill in our short form to get started.