Dental practices, like any other business, must carefully manage their payment processing fees to maintain profitability and smooth operations. With the increasing use of credit and debit cards for patient payments, choosing the right pricing model for credit card processing is critical. Two of the most common pricing models are Interchange Plus Pricing and Tiered Pricing, and each has its advantages and disadvantages.
This article explores the key differences between Interchange Plus and Tiered Pricing, how each model works, and which one is best suited for dental practices. We’ll also discuss how to evaluate which model might be the right choice for your practice, depending on your specific needs and patient payment behavior.
What Is Interchange Plus Pricing?
Interchange Plus Pricing is a transparent pricing model in which the fees charged by the payment processor are separated into two components:
- Interchange Fees: These are set by credit card networks like Visa, Mastercard, Discover, and American Express. Interchange fees vary depending on the type of card used (credit or debit), the type of transaction (online or in-person), and the level of risk associated with the transaction.
- Plus (Markup): This is the payment processor’s markup, a fixed percentage or a flat fee added to the interchange rate. This fee is negotiated between the dental practice and the payment processor.
Interchange Plus is often considered the most transparent pricing model because it provides clear visibility into the actual cost of each transaction, with a fixed markup added by the payment processor.
How Interchange Plus Pricing Works
In this pricing model, the dental practice pays the actual interchange fee for each transaction plus a fixed markup. The interchange fee is a pass-through cost, meaning the processor does not control or profit from it. The practice can see the exact interchange rate, which varies depending on the card used, and the processor’s markup remains consistent.
For example, if the interchange fee for a particular transaction is 1.8% and the payment processor charges a 0.3% markup, the total processing fee would be 2.1%. This makes Interchange Plus more transparent than other models, where fees are bundled and difficult to understand.
Advantages of Interchange Plus Pricing for Dental Practices
- Transparency: Interchange Plus allows dental practices to see the actual cost of each transaction, making it easier to understand and control processing costs.
- Lower Costs for Debit Transactions: Debit card transactions often have lower interchange fees than credit cards, and this pricing model allows practices to benefit from those lower fees.
- Scalability: As a practice grows and processes more transactions, it may be able to negotiate lower markup rates with its payment processor.
Disadvantages of Interchange Plus Pricing
- Complexity: Dental offices need to understand and manage varying interchange rates, which can add complexity to monthly reconciliations.
- Volume Requirements: Practices with low transaction volumes may not benefit as much from the transparency of Interchange Plus Pricing, as fixed fees could make up a larger portion of the overall cost.
What Is Tiered Pricing?
Tiered Pricing is a more simplified pricing model in which transactions are grouped into different pricing categories, or “tiers,” based on certain characteristics of the card or transaction type. Typically, there are three main tiers:
- Qualified: These are transactions that meet all the processor’s criteria for low risk, such as debit card payments or non-rewards credit cards swiped in-person. Qualified transactions have the lowest fees.
- Mid-Qualified: These transactions involve higher risk than qualified transactions and may include rewards cards or transactions where the card is keyed in rather than swiped. Mid-qualified transactions carry higher fees than qualified ones.
- Non-Qualified: These are the highest-risk transactions, such as those involving corporate cards or online payments. Non-qualified transactions have the highest fees in this pricing structure.
Unlike Interchange Plus, the actual interchange fee is not passed through directly to the dental practice. Instead, the processor bundles its fees and the interchange fee into a single rate for each tier, making it more difficult for practices to see the exact cost breakdown.
How Tiered Pricing Works
In the Tiered Pricing model, the payment processor categorizes each transaction into one of the three tiers, and the dental practice pays the associated fee for that tier. The fees within each tier are typically a combination of the interchange fee and the processor’s markup, but the dental office does not see the breakdown between the two.
For example, if a transaction falls under the qualified tier, the fee might be 2%. If it is mid-qualified, the fee could be 3%, and non-qualified transactions could incur fees of 4% or more. The dental office won’t know the actual interchange cost or the processor’s markup.
Advantages of Tiered Pricing for Dental Practices
- Simplicity: Tiered Pricing is straightforward and easy to understand because transactions are grouped into a few pricing categories.
- Predictability: Dental offices can easily predict fees based on the tier the transaction falls into, which can simplify budgeting and cash flow management.
Disadvantages of Tiered Pricing
- Lack of Transparency: Dental practices don’t see the breakdown of interchange fees and processor markups, making it difficult to determine the actual cost of each transaction.
- Higher Costs for Non-Qualified Transactions: Non-qualified transactions, such as online payments or corporate card payments, often carry significantly higher fees in the Tiered Pricing model, leading to higher overall processing costs.
- Inflexibility: Practices may have little control over which tier their transactions fall into, and as a result, may pay higher fees even for low-risk transactions.
Comparing Interchange Plus vs. Tiered Pricing
To help dental practices better understand the differences between Interchange Plus and Tiered Pricing, here’s a comparison table:
| Feature | Interchange Plus Pricing | Tiered Pricing |
|---|---|---|
| Transparency | High – Actual interchange rates + processor markup | Low – Fees are bundled and less detailed |
| Pricing Tiers | No tiers – Interchange + fixed markup for all transactions | Three tiers: qualified, mid-qualified, non-qualified |
| Complexity | More complex due to varying interchange rates | Simpler, but lacks detailed breakdown of fees |
| Potential for Lower Costs | Lower for debit and low-risk credit transactions | Higher for mid- and non-qualified transactions |
| Fee Predictability | Varies based on the transaction | Predictable, with preset fees for each tier |
| Negotiation Potential | More flexible – Markups can be negotiated | Less flexible – Tiers are predetermined by the processor |
What’s Best for Dental Practices: Interchange Plus or Tiered Pricing?
Both pricing models have their merits, but the best choice depends on the unique needs of each dental practice. Below, we’ll break down the key factors to consider when deciding between Interchange Plus Pricing and Tiered Pricing.
1. Transparency and Control
If your dental practice values transparency and wants to see the exact cost of each transaction, Interchange Plus Pricing is the better option. This model allows you to see how much of your processing fee goes to the card network and how much is the processor’s markup, giving you greater control over your payment processing expenses.
In contrast, Tiered Pricing bundles fees into categories, making it difficult to understand the true cost of each transaction.
2. Transaction Volume and Type
The type of transactions your dental office processes plays a significant role in determining which model is more cost-effective. If your practice processes a lot of debit card transactions or other low-risk payments, Interchange Plus Pricing can save you money by passing through lower interchange fees.
However, if your practice deals primarily with high-ticket items or online payments, Tiered Pricing may provide more predictable fees, but at a potentially higher cost for non-qualified transactions.
3. Simplicity vs. Flexibility
For practices that prioritize simplicity and want an easy-to-understand pricing structure, Tiered Pricing might be more appealing. The predictable rates make it easier to anticipate processing fees, even if they are not the most cost-efficient.
On the other hand, if your practice is willing to manage a slightly more complex pricing model in exchange for greater flexibility and the potential for lower fees, Interchange Plus Pricing is likely the better choice.
4. Negotiation Opportunities
With Interchange Plus Pricing, dental practices can often negotiate lower markups with payment processors, especially as their transaction volume grows. Tiered Pricing, however, offers fewer opportunities for negotiation since the processor predefines the tiers.
FAQs
Q1: Which pricing model is more cost-effective for small dental practices?
For small dental practices that process a variety of transaction types, Interchange Plus Pricing tends to be more cost-effective because it offers greater transparency and the ability to benefit from lower interchange fees on certain transactions, such as debit cards.
Q2: How can I tell which pricing model my payment processor is using?
You can review your payment processing statements or ask your payment processor directly. Interchange Plus Pricing will typically show separate interchange and markup fees, while Tiered Pricing will group transactions into different categories with bundled fees.
Q3: Can I switch from one pricing model to another?
Yes, most payment processors allow you to switch between pricing models. If you feel that your current pricing model is not offering the best value for your dental practice, contact your processor to discuss other options.
Q4: Are there any hidden fees with Tiered Pricing?
Yes, one downside of Tiered Pricing is the potential for hidden fees. Since the costs are bundled into categories, it can be harder to determine how
the fees are calculated, and some practices may end up paying more than expected, especially for mid- and non-qualified transactions. Always review your processor’s terms carefully to avoid surprises.
Q5: Can Interchange Plus Pricing be beneficial for large dental practices?
Yes, Interchange Plus Pricing is often more advantageous for larger dental practices that process a high volume of transactions. These practices can negotiate lower markups with their payment processors and benefit from lower interchange fees on certain types of transactions, such as debit card payments.
Conclusion
Choosing the right pricing model for credit card processing is an important decision for any dental practice. Both Interchange Plus Pricing and Tiered Pricing have their pros and cons, and the best choice will depend on your practice’s specific needs and transaction patterns.
Interchange Plus Pricing offers greater transparency and flexibility, making it an excellent choice for dental practices that want to understand and control their processing costs. With this model, practices can benefit from lower fees on low-risk transactions, such as debit card payments, and negotiate better rates as their transaction volume increases.
Tiered Pricing, on the other hand, is simpler and more predictable, grouping transactions into different categories with pre-determined fees. While this model may seem easier to manage, it often results in higher costs for mid- and non-qualified transactions, which may be common in dental practices that process a lot of rewards or corporate card payments.
Ultimately, the best choice for your dental practice will depend on your priorities—whether you value transparency and potential cost savings or prefer the simplicity of a bundled fee structure. By carefully evaluating your payment processing needs and comparing offers from different processors, you can select the pricing model that aligns with your practice’s goals and helps optimize your financial performance.