Cash Discount VS Traditional Processing

Discount pricing, also known as cash discount pricing, is a pricing model that allows merchants to pass on the cost of payment processing to their customers. In this model, the merchant offers a cash discount to customers who pay with cash or non-card payment methods. The advertised price of a product or service is the "credit card," and if a customer chooses to pay with cash, they will receive a 3.5% discount. The machine will automatically charge the 3.5% and pass it to the customer.  

Interchange plus pricing, also known as cost-plus pricing, is a transparent and widely regarded pricing structure for merchant service accounts. It is a method used by payment processors to determine the fees associated with processing credit card transactions, providing businesses with a clear understanding of the actual costs involved.

In an interchange plus pricing model, the fees are calculated based on two main components: interchange fees and the processor's markup.

1. Interchange Fees: Interchange fees are the fees set by the card networks (such as Visa, Mastercard, or American Express) and are paid to the issuing banks for each transaction. These fees are standard across all payment processors and are determined by various factors, including the type of card used (debit, credit, rewards, etc.) and the method of transaction (swiped, keyed-in, online, etc.). Interchange fees are non-negotiable and are updated periodically by the card networks.

2. Processor's Markup: The processor's markup is the additional fee charged by the payment processor for their services. This markup is a percentage or a flat fee added on top of the interchange fees. The markup covers the payment processor's costs, including customer support, technology, and profit margin. The markup is where payment processors can differentiate themselves and compete for merchants' business. It is typically a negotiable component of the pricing structure.

With interchange plus pricing, the interchange fees and the processor's markup are clearly separated in the billing statement. This transparency allows businesses to understand the exact cost of each transaction and evaluate the value provided by their payment processor.