As more people become cashless, businesses must offer convenient payment options, such as credit or debit cards, for customers to pay. Accepting credit and debit card payments is important for companies to provide, but it is also important for business owners to understand the associated processing fees that come with it. In this blog, we will break down all the differences between traditional credit card pricing and dual pricing and assist businesses to seriously consider the dual pricing structure to save money.
Traditional Credit Card pricing
Traditional credit card pricing is when a merchant is set up with either interchange plus, or tiered rate pricing, Interchange plus pricing is a model that credit card processors often use to help determine the cost paid by the merchant per transaction. Interchange is the cost to process all the card types issued by the Card Brands, such as MasterCard, Visa, Discover, American Express, etc. If a business chooses to sign up with an interchange plus pricing structure, for each transaction, they will be charged the interchange rate from the card brands and an additional fee charged by the merchant service provider. For example, if a customer pays with a card with an interchange cost of 2.00% + $0.10, or $2.10. Your merchant service provider passes this cost to you, plus it charges a markup of 0.20% + $0.10, or $0.30. Your total cost for taking the credit card is $2.40, or 2.4%.
Under the Tiered Rate pricing, merchant service providers group all numerous card types by card brands into different tiers. These tiers are referred to as qualified, mid-qualified, and non-qualified, with qualified being the least expensive, Mid-Qualified being a bit more costly, and Non-Qualified cards being the most expensive. Most merchant service companies set a unique discount rate that is different for every tier based on the cost, and they will set a single transaction fee that will be applied no matter which tier the transaction falls into.
Dual Pricing
Dual pricing programs allow merchants to display two prices for their products and services: one with a higher price for customers paying with a credit card and another with a lower price for customers paying with cash. The purpose of this strategy is to encourage customers to pay with cash, thereby reducing the volume of credit card transactions and eventually eliminating the processing fees that are collected from business owners. Before applying a dual pricing program, a business owner needs to comply with the rules by displaying both credit and cash prices everywhere they show prices such as menus, signs, point-of-sale screens, and itemized receipts during checkout.
So all in all, credit card processing fees significantly affect businesses’ profitability. Business owners need to understand the costs associated with credit card processing. It is also important to compare options and negotiate rates with different merchant service companies. However, as a business owner, you can eliminate these fees by applying a dual pricing program. More and more businesses are adopting the new dual pricing to save on merchant processing fees which helps them to grow their business in different areas such as marketing, operations, and other important areas of the business. So, why shouldn’t you?
