Blended Pricing
Blended pricing charges a merchant one rate for every card transaction — 1.5%, or 2.9% plus 30 cents — whatever the card's actual interchange and scheme fees, with the provider absorbing the differences and keeping the spread. It is simple, predictable and, for a merchant whose customers use cheap cards, expensive; it is how small merchants pay and how payment service providers earn most of their margin.
- Also known as
- Blended rate, Flat-rate pricing, Bundled pricing
- Used at
- small and medium merchants, facilitators' sub-merchants, and any provider whose sales pitch is simplicity — Stripe's 2.9% + $0.30 and Square's 2.6% + 10 cents set the conventions
- Binding
- the merchant agreement; the rate may vary by channel (card-present against online) and by card region (domestic against international) while staying blended within each
- Typical margin
- on European consumer debit at 0.2% interchange a 1.5% blend leaves over a point to the provider; on a US commercial card at 2.5% the same blend loses money; across a typical mix the provider nets 0.5–1.2% — several times the interchange-plus margin
- Typical breakpoint
- merchants above a few million of annual volume are usually better off on interchange-plus, and providers move them to it before a competitor does
- Parties
- the merchant, the PSP or acquirer, and — invisibly inside the rate — the issuers and schemes whose fees the blend covers
How blended pricing works in practice
A café signs with a payment provider at 1.6% for all cards. Its customers pay mostly with domestic debit cards carrying 0.2% interchange and 0.03% scheme fees: on each €4 coffee the provider collects €0.064, pays €0.009 to the issuer and the network, and keeps €0.055 — 1.37%. When a tourist pays with a foreign commercial credit card at 1.9% interchange, the provider loses on that transaction and does not mind, because the mix is what it priced. The café sees one rate, one statement line and no surprises; it pays about seven times the underlying cost of its card acceptance and would need an analyst to know it.
The model persists because it is honest about one thing — predictability — and quiet about another. A merchant on a blend cannot see what it is paying for, cannot compare providers on margin, and cannot benefit from a customer base that uses cheap cards. Interchange-plus shows all three and is the norm above a size; blended pricing is the norm below it, and the industry's economics rest on the line between. PSPs manage the mix, monitoring which merchants' card profiles make the blend profitable and repricing the ones that do not.
For a buyer of a PSP or an acquirer, the blended book is the margin — and the repricing risk: every blended merchant that grows is a future interchange-plus negotiation.
Example
A retailer processing €3m a year on a 1.5% blend pays €45,000. Its card mix: 75% domestic debit (0.2%), 20% domestic credit (0.3%), 5% foreign and commercial (1.7%): weighted interchange 0.295%, scheme fees 0.04% — underlying cost €10,050. The provider's margin: €34,950, 1.16%. A competitor offers interchange-plus at 0.25% + €0.05 on 120,000 transactions: €10,050 + €7,500 + €6,000 = €23,550 — a saving of €21,450. The incumbent, called, offers interchange-plus at 0.3% + €0.05 and keeps the merchant at €25,050. Its margin on the account fell from €35,000 to €15,000 in one phone call — the blended margin was a customer's ignorance, and it lasted until the customer learned.
Common mistakes
- Merchants comparing providers' blended rates without knowing their own card mix. - Providers blending across international cards and losing on every tourist. - Staying on a blend past the volume where interchange-plus saves a real sum. - PSPs whose whole margin is blended small-merchant pricing, valued by a buyer as if it were durable. - Blended rates set below cost to win merchants, on a mix assumption the merchant's customers do not share.