Transaction Pricing Levels Out, According to a New Strawhecker Report

Last conducted in 2016, the latest Third-Party Processing Pricing Benchmark Study from The Strawhecker Group indicates that debit and credit card transaction pricing appears to have leveled off. 

The average value of an IP-connected front-end authorization and capture action in 2020 is $0.016 for jumbo wholesale acquirers, or those with an aggregate of more than 3 million average monthly transactions, compared with $0.015 in 2016, the last time the study was produced. 

What’s behind this? It’s not one single factor. “Pricing strategy is never about a single line item, but all of the elements combined—authorization and settlement fees may be transaction-based but there are fixed, daily, and monthly fees that add to the overall cost of a transaction,” says Peter Michaud, director of consulting at Omaha, Neb.-based Strawhecker. For 2020, the report includes pricing benchmarks for the integrated channel and retail independent sales organizations. 

Strawhecker defines a wholesale ISO as one with a broad product offering that provides its own back-office services with direct-processor and bank-sponsorship relationships. It typically manages the risk component. A retail ISO is focused on the sale of merchant accounts, uses a third-party for all back-office support, and generally has no merchant loss or fraud liability. The study included data from 75 pricing examples. The data examines pricing for multiple transaction types across three sizes of providers.

On the retail side, which is included for the first time, the average cost for a traditional dial-based front-end authorization and capture is $0.034 for small acquirers, those with up to 250,000 monthly transactions.

The report also notes that the shift to Internet-based transactions has continued since the 2016 report. Michaud says the use of dial-based POS transactions lessens all the time, but some merchants may unknowingly use dial connections.

For the first time, the study also asked about pricing for the integrated channel, a highly coveted segment. “Integrated pricing (ISVs) are receiving very favorable pricing compared to the average ISO,” Michaud says. 

Regardless of channel or ISO type, pricing is complicated for acquirers. “The pricing strategy remains very complex making it a challenge to compare the processors,” Michaud says.