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Balanced Makes Volume Pricing Public

blog.balancedpayments.com

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Re: Balanced Makes Volume Pricing Public

#31

Post by alisasa »

abalone wrote: post #21

And to further the transparency, Visa & Mastercard also publish their interchange fees, which is the main cost for a processor like Balanced. Here's Visa's: http://usa.visa.com/download/merchants/visa-usa-interchange-... For online the fee program is usually "e-Commerce Basic". So here's Balanced's interchange costs, for Visa: Major debit cards[1]: 0.05% + $0.21 Unregulated debit cards (small banks): 1.65% + $0.15 No…

Your insight about the debit markup is very interesting as it seems to me that Stripe and Balanced do it and perhaps also Braintree. That is a great revenue source for them and there is no way that the cost of accepting Amex (typically about 3.5% but can be negotiated down based on volume) outweighs the revenue from that markup on debit.

The only issue that I see with your analysis is that you refer to Balanced as a processor. Read their commercial entity agreement here: https://www.balancedpayments.com/terms/selleragreement Correct me if I am wrong but the references to Vantiv and Wells Fargo Merchant Services in this agreement indicate that those two entities are doing the processing--although Wells Fargo Merchant Services may have First Data do the actual sending of the transaction across the VISA network. What Balanced is really doing is signing up merchants for these entities as an ISO and perhaps also a Merchant Servicer as defined by VISA.

For the purpose of the following breakdown of Balanced's charges lets exclude closed loop networks like Amex and Discover because they don't have the same structure. Balanced's VISA and Mastercard rate is really a result of the following:

-Interchange charged by VISA and Mastercard (which is what abalone just explained). This fee goes to the bank that issued the user's card. One caveat is that abalone's explanation does not include EIRFed transactions which is a ~0.50% markup ontop of interchange for transactions that are not entered properly. For some companies this is a big pain and a source of unexpected cost.

-Assessment charged by VISA and Mastercard for using their network. This fee is ~0.11% + $0.0195.

-Processor's markup from Vantiv and Wells Fargo. Given their volume, this fee is probably ~0.06% + $0.10 or whatever calculation that gets the processor around 12 basis points from an individual transaction.

-Acquiring bank's cut of about 2 basis points for providing the BIN/ICA. For the Wells Fargo Merchant Services transactions

-Everything else is Balanced's commission that they charge for the service of signing up a merchant for the acquirer (ie bringing them x amount of transactions) and a charge for the service that they provide the merchant (customer service, great API, etc).

I'm not quite sure the reason for having 2 processors though. It must be a difference in price at a certain transaction size and risk profile.

Basically, it is really all of those factors combined that make up the price to the merchant. The reason for the tiers is that processing is all about economies of scale which means that the additional cost to the processor for routing more transactions through their systems is very small. That is how they are able to provide these tiers.

In reality these companies are not that transparent.

Re: Balanced Makes Volume Pricing Public

#32

Post by cristinacordova »

cperciva wrote: post #5
pc wrote: post #3

Earlier quoted context omitted.

Right; we've gone back-and-forth on how best to implement our volume pricing. The upside of a clear pricing matrix is that it's clear. The downside is that it's conservative -- we can (and do) give lower pricing than what we could commit to in a matrix like this to many users. Perhaps we should release a matrix of what we do on average (or a set of minimum discounts) or something. (As ever, feel free to drop me a lin…

we can (and do) give lower pricing than what we could commit to in a matrix like this to many users. Can you elaborate on this? What factors influence what rates you can (and do) give? Chargeback rate? Mix of card types? Type of product or service being sold? Perhaps we should release a matrix of what we do on average I think that would be great -- even better if it's combined with a list of situations which would re…

(I work at Stripe)

The biggest factor in processor costs is actually the card mix, and not the volume that a business generates. To give you some sense, international, AmEx and corporate rewards cards tend to be much more expensive to process. Debit cards, on the other hand, tend to be fairly inexpensive to process for (although, despite the costs mentioned elsewhere in the thread, not all debit cards qualify for Durbin debit rates).

Balanced's pricing matrix only takes one factor (volume) into account. So, for example, if a business accepts a high percentage of debit cards, we can offer a significantly lower rate than the prices in Balanced's matrix.

Re: Balanced Makes Volume Pricing Public

#33

Post by colechristensen »

jareau wrote: post #19
dnfriedman wrote: post #14

Earlier quoted context omitted.

That makes sense – the main thing that bothered me actually is that I didn't (and still don't) know when to ask for discounts. Even if you said discounts vary, but we'll look automatically look at what we can offer when you hit the following sums... that would be great.

We had the same issue with our banking partners. Their pricing schemes are very opaque and we didn't know when we should approach them. We, and you, have better things to do than polling a bank/payments provider asking for discounts. The not knowing is part of the problem.

It probably can't hurt (or take more than 15 minutes) to periodically shoot an email and ask.

Re: Balanced Makes Volume Pricing Public

#34

Post by TomBeckman »

I've been dealing with credit card merchant accounts for our company for many years. The lack of transparency in the industry made it impossible to know if I was getting the best rates possible. Then I found http://www.cardfellow.com where major providers compete for your business. All bids are cost plus based, so you can do a real comparison of the bids. Rates are locked in for life. You can keep the gateway that you're currently using. I ended up with a different division of the same provider I was using, but at a much lower rate. This reduced my net merchant account cost by 3 percentage points. Give it a try. There's no cost. And I have no connection to CardFellow other than that of a very happy customer.

Re: Balanced Makes Volume Pricing Public

#35

Post by zende »

cristinacordova wrote: post #32
cperciva wrote: post #5

Earlier quoted context omitted.

we can (and do) give lower pricing than what we could commit to in a matrix like this to many users. Can you elaborate on this? What factors influence what rates you can (and do) give? Chargeback rate? Mix of card types? Type of product or service being sold? Perhaps we should release a matrix of what we do on average I think that would be great -- even better if it's combined with a list of situations which would re…

(I work at Stripe) The biggest factor in processor costs is actually the card mix, and not the volume that a business generates. To give you some sense, international, AmEx and corporate rewards cards tend to be much more expensive to process. Debit cards, on the other hand, tend to be fairly inexpensive to process for (although, despite the costs mentioned elsewhere in the thread, not all debit cards qualify for Dur…

What happens if a customer's card mix changes?

Re: Balanced Makes Volume Pricing Public

#36

Post by cristinacordova »

zende wrote: post #35
cristinacordova wrote: post #32

Earlier quoted context omitted.

(I work at Stripe) The biggest factor in processor costs is actually the card mix, and not the volume that a business generates. To give you some sense, international, AmEx and corporate rewards cards tend to be much more expensive to process. Debit cards, on the other hand, tend to be fairly inexpensive to process for (although, despite the costs mentioned elsewhere in the thread, not all debit cards qualify for Dur…

What happens if a customer's card mix changes?

Generally, we hold to the offered rate even in the case that the card mix changes and becomes more expensive. In the case that the card mix becomes less expensive, we'll decrease the rate as our costs have changed and we can offer a better price. Our pricing is always based on the costs of the transactions, rather than volume alone.

There are downsides to focusing rates and adjusting them on volume alone. With the Balanced pricing matrix, if a merchant has a mediocre Q3 in volume, their pricing could increase for the highest volume quarter (Q4), even if Balanced's effective cost per transaction hasn't changed at all.

Re: Balanced Makes Volume Pricing Public

#37

Post by zende »

cristinacordova wrote: post #36
zende wrote: post #35

Earlier quoted context omitted.

What happens if a customer's card mix changes?

Generally, we hold to the offered rate even in the case that the card mix changes and becomes more expensive. In the case that the card mix becomes less expensive, we'll decrease the rate as our costs have changed and we can offer a better price. Our pricing is always based on the costs of the transactions, rather than volume alone. There are downsides to focusing rates and adjusting them on volume alone. With the Ba…

> Generally, we hold to the offered rate even in the case that the card mix changes and becomes more expensive. In the case that the card mix becomes less expensive, we'll decrease the rate as our costs have changed and we can offer a better price. Our pricing is always based on the costs of the transactions, rather than volume alone.

This poses an interesting optimization problem. Given that model, a customer should email you at the beginning of every month asking you to (re)evaluate their rate given whatever period (trailing month? trailing 3 months?) you use to determine the card mix.

If the card mix has changed such that Stripe's cost has decreased, the customer would get a lower rate. If the card mix has not changed or has changed such that Stripe's cost has increased, the customer would maintain the same rate.

The above process could further be improved if the customer keeps track of their own card mix and only emails when favorable to do so. This could even be automated.

> There are downsides to focusing rates and adjusting them on volume alone. With the Balanced pricing matrix, if a merchant has a mediocre Q3 in volume, their pricing could increase for the highest volume quarter (Q4), even if Balanced's effective cost per transaction hasn't changed at all.

Yes. It's certainly not perfect. We used to have a tiered model where in each month the first $x was charged at some rate, the next $y would be charged at another rate, etc. It became difficult for customers to calculate their effective rate and project into the future. We'll continue try to improve based on the feedback we get from customers on our current model. Regardless, we'll publish any improvements in our pricing model and make it available to everyone.

I don't want to make this conversation about Balanced vs. Stripe. I asked my question because I was genuinely interested and wanted to see if there was something we could learn from each other. If you do have an internal formula, I encourage you to publish it. If the model is better than the one Balanced uses, it will allow us to learn and for everyone to improve. That is the nature of openness and what we're trying to accomplish.

Re: Balanced Makes Volume Pricing Public

#38

Post by cristinacordova »

zende wrote: post #37
cristinacordova wrote: post #36

Earlier quoted context omitted.

Generally, we hold to the offered rate even in the case that the card mix changes and becomes more expensive. In the case that the card mix becomes less expensive, we'll decrease the rate as our costs have changed and we can offer a better price. Our pricing is always based on the costs of the transactions, rather than volume alone. There are downsides to focusing rates and adjusting them on volume alone. With the Ba…

> Generally, we hold to the offered rate even in the case that the card mix changes and becomes more expensive. In the case that the card mix becomes less expensive, we'll decrease the rate as our costs have changed and we can offer a better price. Our pricing is always based on the costs of the transactions, rather than volume alone. This poses an interesting optimization problem. Given that model, a customer should…

That's assuming we're only looking at the card mix for a given month. Generally, we're looking at a trailing 3-month period -- and if a user wants to email us every three months to ask if we can lower their rates, we welcome them to do so.

We've certainly thought about how we can be more open with our pricing, as Patrick mentioned, and for customers that want details about why their rate is the way it is, we'll definitely dial-in to the details. We optimize for simplicity though, as we know that many of our users don't want to read an excel spreadsheet detailing the variety of charges we incur from card networks and other parties, which factor into their overall rate. Many of our users have chosen Stripe because we abstract away all the complexity involving pricing.

Re: Balanced Makes Volume Pricing Public

#39

Post by gregpilling »

cristinacordova wrote: post #36
zende wrote: post #35

Earlier quoted context omitted.

What happens if a customer's card mix changes?

Generally, we hold to the offered rate even in the case that the card mix changes and becomes more expensive. In the case that the card mix becomes less expensive, we'll decrease the rate as our costs have changed and we can offer a better price. Our pricing is always based on the costs of the transactions, rather than volume alone. There are downsides to focusing rates and adjusting them on volume alone. With the Ba…

why couldn't you charge a markup based your cost? So I as a vendor pay more to process Amex and less for debit.

I can certainly steer my customers to use different cards by offering discount coupons for debit. On the internet 1% can mean a big swing in sales.

Re: Balanced Makes Volume Pricing Public

#40

Post by jareau »

gregpilling wrote: post #39
cristinacordova wrote: post #36

Earlier quoted context omitted.

Generally, we hold to the offered rate even in the case that the card mix changes and becomes more expensive. In the case that the card mix becomes less expensive, we'll decrease the rate as our costs have changed and we can offer a better price. Our pricing is always based on the costs of the transactions, rather than volume alone. There are downsides to focusing rates and adjusting them on volume alone. With the Ba…

why couldn't you charge a markup based your cost? So I as a vendor pay more to process Amex and less for debit. I can certainly steer my customers to use different cards by offering discount coupons for debit. On the internet 1% can mean a big swing in sales.

(I'm a Balanced employee)

We certainly could offer cost+ pricing. In fact, that's the status quo in most of the payments industry right now. But as cristinacordova from Stripe points out above:

"We optimize for simplicity though, as we know that many of our users don't want to read an excel spreadsheet detailing the variety of charges we incur from card networks and other parties, which factor into their overall rate. Many of our users have chosen Stripe because we abstract away all the complexity involving pricing."

Balanced chooses to offer blended, simple pricing for similar reasons.

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