Why IC++ is not always about cost reduction and how PSP make money on blended pricing

In this article:

• IC++ breaks down the fee into parts: interchange, scheme fee, provider markup, while blended combines everything into one fixed rate.
• With blended, the provider itself pays for interchange fluctuations and is incentivized to optimize processing; with IC++, this risk and incentive often shift to the merchant.
• IC++ reveals real savings only at high, mixed transaction volume — on low, homogeneous volume the difference may not offset the administrative overhead.

When merchant is choosing payment provider, conversations about fees naturally take center stage. Quite often, it is virtually the only aspect that is actually studied and negotiated. Within this discussion, a key question inevitably surfaces: which pricing model is actually more profitable — IC++ or blended.

The industry has long pushed a simple answer to this question: IC++ is transparent, therefore it is profitable; blended is opaque, therefore it is disadvantageous. This answer is repeated so often that it has turned into an axiom that rarely anyone verifies with actual numbers. In practice, this is not always the case, and the difference between the models is revealed not in the name, but in how exactly PSP processes transactions inside the chosen structure.

Therefore, before demanding a specific model, it is worth understanding what exactly you are getting and what you are actually risking in each scenario.

That is what we will break down today!

What is the difference between IC++ and blended?

The blended pricing model is likely familiar to most merchants and is most commonly found among startups and high-risk businesses. In this case, payment provider charges a single flat fee per transaction — for example, 2.9% plus a fixed part like $0.30 — regardless of the card type used by the buyer, issuing country (most often), or the transaction type: a one-time purchase or a recurring charge. This fee already includes all card scheme expenses for payment processing, as well as the provider's own profit, forming a single understandable figure for the merchant. In this model, merchant usually does not know what is inside the final rate they pay.

IC++, in turn, breaks this same amount down into three separate components where you can precisely track how the price is formed. The Interchange fee goes to the card issuer — the bank that issued it; the Scheme fee goes to the payment network itself — Visa, Mastercard, Amex — for using the routing and clearing infrastructure. And finally, the markup is what the payment provider actually earns for its work: gateway, risk management, support, integration. In an ideal world, the merchant sees all three-line items separately for each transaction and understands where exactly their expense (PSP fee) is formed, and what part of it is fixed by the payment network and non-negotiable in principle.

Sometimes you come across the designation IC+ (single plus) — this is a simplified version where markup and scheme fee are combined into a single line, and only interchange is shown separately. IC++ (double plus) provides a fuller breakdown. The difference seems insignificant, but in practice, it is precisely in this reduction of transparency that the provider's additional margin is often hidden.

Why “IC++ is cheaper” is not always true

There is a persistent myth that switching to IC++ automatically lowers costs, that it is cheaper simply because the pricing model itself guarantees it; after all, many small numbers look better than one big one. However, in reality, there is no guarantee whatsoever, but only the potential for possible savings, which is based on adding transparency to statements. The merchant gets more information about their fee through the breakdown by line items, yet the total amount can end up being exactly the same as in a blended model. Why is that?

First and foremost, it is important to consider a major operational factor: in the blended model, payment provider itself bears the risk of interchange fluctuations, because it is the provider that pays the network out of its own pocket, while charging the merchant a fixed rate regardless of how the transaction actually processed. Payment provider has a direct financial incentive to process transactions as optimally as possible, because any “downgrade” — when a transaction is processed sub-optimally and falls into a higher interchange tier — hits the provider's own margin. If the PSP misconfigured data transmission or fails to use the necessary risk-reduction mechanisms, it loses its own money, giving it a strong incentive to fix it.

Under IC++, however, this logic flips upside down: since interchange is debited directly from the merchant, payment provider no longer has such a strong motivation to optimize processing — a sub-optimal transaction qualification costs them nothing, as it simply passes the difference down the chain. In practice, this happens quite often, essentially being a routine part of card network mechanics. The industry is aware of this, yet fixing everything in one sweep is impossible, so optimization has to be performed along the way. Such factors include the presence or absence of 3DS verification, AVS, correct subscription payment tagging, and others.

Collectively, all these factors can raise the effective interchange by 30–50%, and sometimes even more relative to the optimal rate. Under blended, this difference is covered by payment provider, and the merchant doesn't even know about it. Under IC++, merchant technically sees this amount line-by-line and directly pays this fee, which itself does not make it any smaller. Furthermore, to compensate for a low markup, payment providers can openly demand stable minimum volume requirements or monthly fixed servicing fees, which in the end can cost more than a standard blended tariff on the merchant's volume.

Mainly, the “cheapness” of the IC++ model in the eyes of merchants is justified by the fact that the merchant can see payment system's actual markup, rather than guessing how much the PSP earns inside one general figure. It is precisely this knowledge that can be used in negotiations to lower such fees, as only this item is truly subject to manipulation. Payment provider with whom a merchant has a weak negotiating position — for example, due to low volume or a narrow high-risk niche — may well charge a large markup. However, in such industries, higher fees are justified openly, and merchants who have been in the market for a long time know this. Transparency in this sense is useful, as it allows you to see overpayment, but it does not guarantee that it won't be there.

Common merchant mistakes in this process

Armed with this knowledge, merchants often focus on securing a specific pricing model, making a number of mistakes along the way. These include, for example:

• Prioritizing pricing model over PSP quality. The form of pricing is secondary to the quality of payment processing itself, which determines the overall transaction approval rate, and consequently, business profitability. Optimized IC++ with a strong, technologically mature provider is almost always more profitable than blended; however, such providers are not available to everyone, and blind pursuit of reporting data makes no practical sense for the business.
• Ignoring volume and transaction profile. IC++ reveals its true advantage at scale and with a diverse mix of cards — when a merchant processes many different card types, countries, 3DS scenarios, and transaction types mixed together (typical for digital subscriptions). That is when line-by-line detailing shows where money is actually being lost, whereas on low volume and a homogeneous flow, the difference between models may be statistically negligible, and the administrative burden of analyzing line-by-line statements will not pay off at all.
• Comparing markups without accounting for additional fixed fees. If IC++ comes with monthly account maintenance fees, minimum volume requirements, or a separate fee for accessing detailed reporting — you need to compare the realistic total cost of ownership, not an isolated markup percentage that looks attractive only on paper.
• Ignoring seasonality and interchange volatility. Interchange rates are not static — they are periodically revised by payment networks; under blended, this volatility is imperceptible, whereas under IC++, it immediately impacts the merchant. This is not inherently a negative factor, but it deprives financial planning of simplicity, as you always need to understand that processing expenses may not be 100% predictable month to month.

Another important aspect is that not all payment providers offer both pricing models to choose from. Overall, disclosing the fee structure line-by-line presents no mechanical difficulty, but the provider's own business model may not be ready for it.

Blended provides a predictable margin flow and the ability to absorb interchange volatility independently, smoothing it out for itself across its entire client portfolio. This is convenient to sell to small and medium businesses: a single rate is easier to understand without special training, easier for forecasting expenses for the next quarter, and does not require the merchant to maintain an accounting team (which small businesses often lack entirely). That is why the vast majority of small and medium businesses agree to and choose blended by default, as it is indeed often quite sufficient for their business profile.

IC++ requires a more mature technical infrastructure from the PSP: per-transaction line-item breakdowns for every card type, every country, every tier, with constant updates as payment network rates change. Not every provider, especially among smaller and less technologically advanced ones, is ready to invest in such infrastructure for a merchant segment that doesn't bring sufficient revenue at the moment. Furthermore, IC++ makes payment provider more vulnerable to competition on markup — since the merchant sees this figure separately, it is easier to compare between providers and demand discounts during negotiations, whereas inside a blended rate, competitive pressure is diluted behind a general figure that is harder to compare one-to-one between different offers.

Therefore, IC++ has historically been available to merchants with large volumes and strong bargaining power: a large player can press PSP not only for the pricing model itself, but also for reasonable markup within it, relying on volume and the presence of alternative offers from a number of competitors.

Practical takeaway for merchant

The main practical conclusion is not to chase pricing form for the sake of form and not to perceive the name of a model as an independent indicator of its value. Before demanding IC++ from payment system, it is worth assessing whether your volume is sufficient and your transaction flow is diverse enough for line-by-line transparency to be practically useful. Is your financial and risk team ready to regularly analyze line-by-line statements, identify gaps, and react to them?

Blended is not necessarily a bad or outdated choice for small and stable business where administrative simplicity and expense predictability are more important than point savings on interchange that won't be factored in anyway. And IC++ is not an automatic victory if the markup is opaque or the merchant simply lacks the resource to extract value from detailing they receive.