For large merchants going overseas, a 1% fee loss could directly result in a loss of $10,000 in revenue.Today, let’s discuss the pricing models of payment service providers.
First, it is essential to understand that the core difference between these two models lies in thecomposition of the exchange rate and the transparency of fees.
IC++ model: Separates the actual cost (interbank exchange rate) and the markup (profit of the service provider), providing high transparency.
FXfixed fee model: Provides a packaged, fixed exchange rate that includes all costs and profits of the service provider, making it simple to operate.
1.IC++ Charging Model
1. What is it?
IC++ is also known as“interbank rate plus” or“cost-plus” model. It consists of three parts:
Benchmark Exchange Rate: Usually the actual interbank exchange rate, which is the rate used for large currency transactions between international banks, representing the best rate available in the market. For example, the rate you find on Reuters or Bloomberg.
Markup: The profit portion added by the payment service provider on top of the benchmark exchange rate, usually expressed as a percentage. This is the actual income of the payment service provider.
Fixed Transaction Fee: Sometimes there is a separate, fixed transaction fee.
Simple formula: Final fee = (Amount × (Benchmark exchange rate × (1 – Markup percentage))) + Fixed transaction fee
Example (10,000 USD → EUR) calculation should be:
Assuming the interbank exchange rate:1 USD = 0.9200 EUR
After a 0.5% markup from the payment service provider, the rate you receive will be lower:
Your foreign exchange selling price = 0.9200 × (1 – 0.005) = 0.9200 × 0.995 = 0.9154
The final amount you receive in euros:10,000 USD × 0.9154 = 9,154 EUR
Your loss: You should have received 9,200 EUR, but actually received 9,154 EUR, resulting in a loss of 46 EUR (the profit of the payment service provider)
Applicable scenarios:
Large transactions: Since the markup is proportional, large transactions are more sensitive to exchange rate fluctuations,IC++ model usually has a lower total cost.
Companies pursuing cost transparency and optimization: Financial personnel want to clearly know where every penny is spent, facilitating cost accounting and comparison of different service providers.
Companies frequently making cross-border payments: Can negotiate with payment service providers for a lower markup percentage.
2.Factors affecting the pricing of IC++:
| Cost Components | Main Influencing Factors |
|---|---|
| Interchange Fee | Card Type (Commercial cards/reward cards usually have higher rates),Transaction Method (Online or card-not-present transactions have higher rates),Merchant Industry (MCC code affects rates),Transaction Region |
| Scheme Fee | Card Brand (Visa, Mastercard, etc.),Pricing Strategy of the payment service provider |
| Acquirer Margin | Transaction Volume (Higher volumes can negotiate),Business Risk (High chargeback rates may lead to higher markups),Service Level (e.g., risk control, reporting services, etc.) |
3.FX (fixed rate/flat rate)Fixed Fee Model
1. What is it?
FX fixed fee model, also known as“locked exchange rate” or“packaged rate” model. The payment service provider will directly give you a fixed exchange rate that already includes all their costs and profits. This rate is usually much worse than the interbank rate at the same time (i.e.,“spread” is larger).
You do not need to worry about the underlying markup; you just need to accept this quote and proceed with the transaction.
Simple formula: Final amount received = Payment Amount × Fixed Rate Provided by the Service Provider
2. How to calculate?
Taking the example of exchanging10,000 USD to euros:
Scenario: You need to exchange10,000 USD to euros (USD → EUR).
Current interbank exchange rate:1 USD = 0.9200 EUR (for reference, but you cannot see it)
Fixed rate provided by the payment service provider:1 USD = 0.9100 EUR (this rate has already“packaged all costs)
Calculation steps:
Very simple and straightforward:
Amount received = USD Amount × Fixed Rate = 10,000 USD × 0.9100 EUR/USD = 9,100 EUR
You can immediately know how much you will receive, with no other hidden fees.
Applicable scenarios:
Small or individual users: Simple and intuitive operation, no complex calculations or understanding required.
High budget certainty and determinism requirements: You can100% ensure the final amount received, facilitating fund planning and avoiding exchange rate fluctuation risks (locking in at the moment of transaction).
Users who dislike hassle and do not pursue extreme cost savings: Trade convenience for potentially slightly higher costs.
Comparison Summary:
|
Comparison Dimension |
IC++ Model (Interchange Plus Plus) |
FXFixed Rate Model (Flat Rate) |
|
Cost Composition |
Interchange Fee(Interchange fee) + Scheme Fees(scheme fees) + Acquirer Margin(Markup) |
A packaged fixed rate, simplifying all costs |
|
Transparency |
High transparency, clearly showing each cost component |
Low transparency, unclear cost composition |
|
Cost Fluctuation |
Costs fluctuate due to interchange rate changesunpredictably |
Stable and predictable, costs fixed |
|
Best Applicable Scenario |
Monthly transaction volume exceeding100,000 USD, with a professional finance or technical team,pursuing extreme cost optimization large and medium-sized enterprises |
Startups orsmall and medium-sized enterprises,valuing budget certainty and operational simplicity, with low transaction volumes |