How CNP Merchants can Better Process Visa & MasterCard

4. Bundled vs. Pass-through Pricing:

In order to accept credit cards, merchants pay a variety of fees to multiple players including the Card Associations (“assessment” fees), card-issuing banks (“Interchange” fees), and payment processors (processing fees.) Most merchants’ fees are structured using a bundled model, whereby all of these fees are combined into a single rate which may include a percentage-of-sale fee, a fixed per-item fee, or a combination of both. The problem with this model is that it is virtually impossible to discern exactly what the merchant is paying, and to whom these payments are going to. Over the past five years, another pricing model, commonly known as the “pass-through” method, has emerged as a popular alternative. Under this structure, payment processors report fees in separate sections dedicated to each of the players involved in the transaction. In this manner it easy for the merchant to determine just how much the processor – the merchant’s gatekeeper into the credit card systems – and the other parties are earning. What’s more, itemized Interchange reporting allows the merchant to effectively understand and manage downgrades. Pass-through pricing offers merchants the most transparent form of reporting, providing for easier reconciliation and downgrade remediation.