Card Fees & Pricing Methods - an explainer
by Tebi • November 20, 2023
Every transaction fee actually consists of three separate fees: interchange fees + scheme fees + acquirer fees. Acquirer fees are what you pay the provider of the payment service, the other two (dubbed ‘Card Fees’) have different beneficiaries and, as a result, their cost varies depending on a number of factors, such as the country where the card was issued, the brand of card, if it is a consumer card or a commercial card, and the issuing bank.
There are different ways payment providers will communicate these fees. Some, like Tebi, go into great, boring detail. Others wrap them up in a nice package. One of those methods is complex and transparent, the other is not. Keep reading to find out which is which!
In Tebi’s pricing, Card Fees are made up of two components: Interchange Fees and Scheme Fees.
The largest component of the cost of each transaction usually are the Interchange Fees paid to the cardholder’s bank to cover their costs, and can range from 0.3% to over 2.5% of the transaction value.
Factors that impact the final Interchange Fee include whether the card is debit or credit, consumer or corporate, the country of issuance, and the country where the transaction occurred. As a result, interchange fees will vary from transaction to transaction.
A card scheme is a payments network that uses debit or credit cards to process payments, with the purpose of managing payment transactions. Banks and financial institutions provide such a network and charge a Scheme Fee, which is paid by businesses using the network to process transactions. For example, Visa and Mastercard are both providers of card schemes with corresponding Scheme Fees.
Scheme Fees are often subject to changes. For example, in 2015 the EU capped interchange fees to 0.30% (credit cards) and 0.20% (debit cards), prompting Visa and Mastercard to look for other ways to bring in more money. This resulted in a considerable raise in scheme fees, causing payment providers with blend pricing to raise their prices as well.
Here, we compare two pricing methods: Blend Pricing and Interchange++ Pricing
With Blend Pricing, you are charged the same cost regardless of the payment method. Blend pricing is the most easy-to-understand pricing method, and consists of a flat fee (ie. 1.95% on every transaction) that is applied to every transaction regardless of which card is used, or from which bank, or where. While straightforward, a blend price needs to cover a broad spectrum of cards and their corresponding fees, and allows the payment service provider to pocket a larger markup on most transactions. As a result, you might save on the transactions where particularly expensive cards are used (e.g. a commercial credit card from a different region) but for most transactions (e.g. a domestic debit card) you end up paying a higher fee, with the payment service provider keeping the difference. All in all, this makes Blend Pricing the more expensive pricing method.
A more transparent and fairer pricing structure, where the merchant pays the applicable transaction costs directly, is Interchange++ Pricing. Depending on transaction characteristics, the final interchange fee varies per transaction.
While Interchange++ Pricing is affected by card schemes to a certain extent, the final value of the interchange fee a business has to pay depends on a variety of factors and as a result changes from transaction to transaction. It is for this reason that businesses benefit from Interchange++ pricing - on each transaction they pay the cost corresponding to these factors, instead of a flat percentage covering the fees, and then some.
Which pricing method does Tebi use?
Part of our mission is to bring the pricing typically only available to large enterprises to small and medium sized businesses in a transparent way. To that end, we’ve deliberately chosen to offer Interchange++ pricing to our merchants instead of Blend pricing.