Blended vs interchange plus plus fees
Card types aside, what about the actual fee structure? Broadly speaking, there are two types of pricing: blended fees and interchange++ (interchange plus plus) fees.
Blended fees are the go-to option for small, new or low-volume businesses. They are on average higher, but simpler to understand because they comprise of single or few fixed rates for clearly defined cards.
For example, Zeller charges a single fee of 1.4% for all contactless and chip cards. Tyro offers a mix of rates like 1.1% for Visa and over 1.5% for international cards like American Express and Diners Club.
Then there’s interchange++ pricing that best reflects the true cost of each transaction. This is the bit that gets complicated, since it relates to the different parties involved in card processing.
Interchange++ pricing consists of individual charges incurred by these parties:
- Card issuer: Cardholder’s bank or credit card issuer
- Card scheme/network: Card brand, e.g. Mastercard or Visa
- Acquiring bank/acquirer: Merchant account provider processing and settling payments, e.g. Adyen or Fiserv
- Payment provider: Markup fee added by payment provider, e.g. Tyro or Westpac
The full interchange++ cost of a transaction therefore comprises of all of these:
- Interchange rate: Percentage rate for card issuer
- Scheme fee: Base fee + payment technology fee for card scheme
- Acquirer fee: Fee for acquirer
- Merchant service charge: Markup fee for payment provider (sometimes part of acquirer fee)
Here’s what that could look like for an Australian Visa consumer debit card:
Interchange++ fee example:
0.2% (interchange) + 0.7¢ + 0.01% (scheme fees) + 0.6% (acquirer fee) + 0.30¢ (merchant service charge)
The card schemes (Visa, Mastercard) publish their interchange fees for full transparency.
In comparison, blended fees are simplified charges where the above interchange++ charges are ‘blended’ together to make fewer, more general rates. It could look like this:
Blended fee examples:
1.1% per domestic Mastercard or Visa card transaction
2.9% + 0.4% (cross-border fee) per foreign Amex card transaction
Because interchange++ fees vary a lot and are therefore unpredictable from the merchant’s perspective, blended rates are often preferred by small businesses. On the other hand, interchange++ tends to be cheaper overall, but it’s usually only offered to larger merchants with a high enough sales volume, e.g. over $20k of card transactions processed monthly.