Best Practices

Demystifying Blended and Interchange Plus Pricing

It's often a very confusing conversation, and there's also a lot of misinformation and outdated information about interchange. When it comes to interchange rates, our north star is always what the credit card processors communicate on their own websites. Visa, MasterCard and American Express maintain up-to-date information, so we always encourage operators to visit their sites to get the direct scoop.

What is the Difference Between Interchange-Plus & Blended Rate Processing?

First, let’s start with the simpler of the two concepts: blended rate processing. A blended rate is just a simplified way of balancing the costs. It’s an average rate and the net effect is that sometimes your vendor will lose money and sometimes they will make money using with it.

Many merchants automatically assume that interchange (IC) plus pricing is always cheaper than blended rate processing. We find that’s not always the case. First, IC plus or cost-plus pricing means that the processor has no incentive to use the most cost-effective method for processing a card because they do not bear those costs - you do. How a processor executes transactions matters a lot and can increase the interchange cost to you by 50% or more if done badly. 

When the processor executes the transaction sub-optimally, those are called “downgrades” because the banks treat them as higher risk and raise the interchange rate. Unfortunately, this happens all the time. Running transactions optimally takes a substantial investment in technology that many processors do not want to make, especially if their customers can’t tell the difference.

Second, interchange is just one part of the cost. It is the portion that is paid to the bank that issued the card to the consumer. This is determined by the type of card, the Merchant Category Code (MCC) of the merchant, and how the transaction is processed. The “plus” portion is composed of yet more fee fractions which get paid to the network (Visa / MC) usually called “Scheme Fees.” If it is an old school processor, there is also a dumping ground which is usually called “Dues & Assessments.”

Finally, in many venues, payments could be aggregated but the tech doesn’t support it (easily). Just think of how many payments you make when you go to a counter service venue. Maybe two: one for the Burger and one for the beer? Worse yet, did you forgo another purchase at the venue (and the venue forgo an extra item sale) due to the additional friction of having to stand in line, order and pay a third time?

This last point isn’t so much about processing rates, as it is pointing out that there are far more significant impacts of a system than saving a half percent of cost. 

The Right Priorities for Your Business

Overall, GoTab tries to keep our blended rates aggressively priced. Part of the reason we do this is because we know POS is a very competitive market where large, publicly traded companies will sometimes charge a much lower processing rate, but then make up the difference with long-term contracts and high SAAS fees. 

For those who prefer interchange-plus pricing, we expose all the costs as well as the portion that we mark up in the form of a transaction fee. While that is where GoTab makes money, the irony is that our focus from a hospitality technology standpoint is helping our operators increase sales by making it easier for guests to buy things and reducing excess costs for labor and food.

Our high-performing operators are seeing about 50% reduction in food running costs which leads to an average overall impact of 30% reduction in labor cost. The typical labor cost for a food and beverage operation is about 30% of total revenue so that ends up to a 10% reduction of labor as a percentage of revenue. 

Check out our simple and transparent pricing to learn more!

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Situated “in the heart of it all, yet tranquil enough to make you feel away from it all too,” The Limelight Hotel Snowmass offers 99 hotel rooms and 11 residences, as well as footsteps-to-gondola access in winter and summer — right in the middle of Snowmass Base Village.

The Situation

Especially over the last few years, the Limelight Hotels IT team had witnessed a significant shift to contactless technology in the hospitality industry. After evaluating friction points in the guest journey, aligning with modern technology platforms in their restaurant was determined to be an effective way to offer elevated contactless dining experiences to their guests while also evolving their technology platforms to continue to support long-term company goals. Limelight Hotel partnered with GoTab to provide an enhanced on-demand dining experience on par with the brand’s reputation for exceptional guest service.

The Solution

Reducing Staff Touch Points Without Sacrificing Guest Experience

Guests are now able to begin a tab from their room or the property’s restaurant by scanning a QR code, texting a link to friends or family members on the ski slope to add in their orders, then meeting up together at the patio or lodge to enjoy their meal and après ski festivities without interruption. By streamlining tasks like inputting orders and processing payments, this eliminates friction for hotel staff and allows them to focus on delivering renowned guest service for a memorable experience. Since partnering with GoTab, Limelight Snowmass has consistently seen higher check averages and sales.

“We found the Point of Sale platforms we were looking at offered the guest and staff limited opportunities to further reduce touch points or improve the traditional restaurant experience. The GoTab platform enabled the guest to take an active role over the flow of their experience while simultaneously reducing touch points and further streamlining restaurant operations.”Nick Giglio, Manager of Hotel IT Operations, The Little Nell Hotel Group

According to the Limelight Hotels team, some of the other platforms that were evaluated were either missing some of the pieces they were looking for, had weak customer support models, or had little willingness to develop integrations to existing hotel platforms already in place. To that end, GoTab integrated with cloud-based platform, Infor. Together, GoTab and Infor are providing dynamic solutions to support central, efficient service across hotel amenities and deliver exceptional guest experiences.

“Previously, guests would call down to the restaurant to begin an order from their room or while they were out enjoying the ski slopes. Using GoTab, guests can now place orders from anywhere on the resort, giving them the on-demand service they want without interrupting their day. GoTab empowers us to give control to the guest, reducing touch points and streamlining overall restaurant operations, making Limelight Hotel the resort of choice for Snowmass.”Nick Giglio, Manager of Hotel IT Operations, The Little Nell Hotel Group

Since introducing GoTab, The Limelight Hotel has seen a consistent level of upsells and items sold per check resulting in additional revenue capture. They have been able to maintain service levels in their restaurants during periods when there was reduced staffing available without significantly diminishing the guest experience.

The Benefits

Eliminate Phone Orders – Take Orders from the Slopes. Guests can start a tab from their room or on the mountain without interrupting the flow of their day.

Future-Proofed Technologies – Delivering elevated contactless ordering via integration with the Infor hotel management platform.

Eliminating Friction in the Guest Journey – Maintaining service levels during periods of reduced staff without diminishing the guest experience.

  • Eliminating Friction in the Guest Journey – Maintaining service levels during periods of reduced staff without diminishing the guest experience.
  • Eliminating Friction in the Guest Journey – Maintaining service levels during periods of reduced staff without diminishing the guest experience.
  • Eliminating Friction in the Guest Journey – Maintaining service levels during periods of reduced staff without diminishing the guest experience.
  • Eliminating Friction in the Guest Journey – Maintaining service levels during periods of reduced staff without diminishing the guest experience.

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