Blended Pricing

Blended pricing is a way of charging merchants for card acceptance in which the payment provider sets a single rate, or a small number of rates, for each transaction instead of passing through the actual underlying costs. The blended rate covers the interchange fee paid to the card issuer, the scheme fees charged by the card network, and the provider's own margin, all rolled into one figure such as 1.5 percent plus a fixed amount per transaction.

The model is common among payment service providers and payment facilitators serving small and medium-sized businesses, because it is easy to understand and predict. Its main alternative is interchange++ pricing, in which each cost component is passed through separately. Related models include flat-rate pricing, which is the simplest blended form, and tiered pricing, which uses a few blended rates for different card groups.

The underlying cost of a card payment varies widely. Interchange depends on the card type (debit, credit, premium or commercial), whether the card was issued in the same region, whether the payment was made in person or online, and the merchant's category. Scheme fees also vary by network and transaction type. Under blended pricing, the provider estimates the average cost across the merchant's expected mix of cards, adds its margin and charges the same rate on every transaction. Some providers set different blended rates for broad groups, for example domestic and international cards, or card-present and card-not-present payments.

Suppose a provider charges a blended rate of 1.5 percent plus 0.20 per transaction. On a sale of 50.00, the fee is:

If that sale was made with a domestic consumer debit card whose interchange and scheme fees came to 0.25 percent, or about 0.13, the provider's margin on the sale is roughly 0.82. If instead the customer used a premium commercial card costing 2.0 percent in pass-through fees, or 1.00, the provider would lose about 0.05 on that sale. Over many transactions, the provider relies on the average cost staying below the blended rate. The same 1.5 percent figure therefore hides very different margins, a point explored under acquirer markup.

• Simplicity. Merchants can forecast fees easily and compare headline rates.
• Predictability. Monthly costs do not swing with changes in the card mix or scheme fee updates.
• Easy reconciliation. Each settlement shows one fee per transaction, which simplifies accounting.
• Fast onboarding. Providers can sign up small merchants with standard pricing and little negotiation.

• Hidden margins. The merchant cannot see the true cost of each payment or how much the provider earns.
• Overpaying on cheap cards. Merchants whose customers mostly use low-interchange debit cards may pay far more than under pass-through pricing.
• Limited benefit from regulation. When regulators cut interchange, the saving may not reach merchants on blended rates unless the provider lowers its price.
• Weak incentives. Merchants have no reason to encourage cheaper payment methods, since every card costs them the same.

Providers often adjust blended pricing at the edges. Some add a surcharge for international or commercial cards on top of the base rate, others offer a lower rate once monthly volume passes a threshold, and many charge a different blended rate for card-present and online payments. Payment facilitators may also bundle in services such as fraud screening, which makes comparisons with pure processing prices harder.

In the European Union, the Interchange Fee Regulation requires acquirers to offer merchants pricing that shows interchange, scheme fees and the acquirer's charge separately for each category and brand of card, unless the merchant asks in writing for blended pricing. The UK kept a similar rule. In the United States there is no equivalent requirement, and blended and tiered pricing are widespread, though industry guidance and competition have pushed many providers to offer interchange-plus options to larger merchants. Monthly statements should still show the total fees paid so that merchants can work out their effective rate.

Blended pricing suits merchants with low volumes, unpredictable card mixes or little capacity to analyse fee statements. Larger merchants, and those with many low-cost debit transactions, usually save money with interchange++ once their volumes justify the extra complexity. A useful check is the effective rate, the total fees divided by total card sales over a month. Comparing this figure across offers, along with any monthly or fixed charges, shows the real cost of acceptance. Some providers also quote a blended transaction cost that includes all charges, which can make comparisons easier.