Interchange-plus vs flat-rate vs tiered pricing

What makes up a credit card processing fee?

Every card transaction carries three layers of cost, no matter which pricing model you're on:

• Interchange: paid to the cardholder's bank (the issuer). Visa, Mastercard and Discover publish these rates, and they vary by card type, how the card was accepted (tapped, dipped, keyed or online), your industry and the transaction size. A basic debit card tapped in a store might cost well under 1%, while a premium rewards card keyed in online can exceed 2.5%.
• Assessments (network fees): small fees paid to the card brands themselves, usually around 0.13%–0.15% plus some per-transaction fees.
• Processor markup: what your processor or provider charges for their service. This is the only part that's really negotiable.

Pricing models differ only in how they package these three pieces and present them to you. Interchange and assessments are the same whoever you work with; the markup, and how visible it is, is what changes.

What is interchange-plus pricing?

Interchange-plus (also called "cost-plus" or "pass-through") passes the actual interchange and assessment costs through to you at cost, then adds a fixed, disclosed markup. A typical quote looks like interchange + 0.25% + 10¢ per transaction.

Because the markup is fixed and separate, you can see exactly what you pay your provider and compare quotes apples-to-apples. When card brands lower a rate, you benefit automatically; when they raise one, you see it on the statement.

Pros

• The most transparent model: you see the true cost of every card type.
• Usually the lowest total cost for established businesses.
• Easy to compare offers: just compare the markups.

Cons

• Statements are longer and can look intimidating.
• Monthly costs vary with your card mix.
• Some providers add monthly fees on top. Ask for the full fee schedule.

What is flat-rate pricing?

Flat-rate pricing charges one rate for most transactions, for example 2.6% + 15¢ for in-person and 2.9% + 30¢ for online. Square, Stripe and PayPal popularized this model. The provider absorbs the variation in interchange and keeps the difference.

Pros

• Very simple and predictable.
• Fast signup, often with no monthly fee.
• Good for low-volume, seasonal or brand-new businesses.

Cons

• You pay the same high rate on cheap debit transactions as on expensive rewards cards, so you overpay on low-cost cards.
• Usually more expensive than interchange-plus once you pass roughly $10,000–$20,000 a month.
• Aggregator accounts can be held or frozen with little notice if risk systems flag activity.

What is tiered pricing?

Tiered pricing sorts transactions into buckets, most often three: qualified (the lowest rate, e.g. 1.69%), mid-qualified (e.g. 2.39%) and non-qualified (e.g. 3.49%). The processor decides which card types fall into which bucket, and the definitions are rarely disclosed in detail.

The advertised rate is almost always the qualified rate, but many common transactions, including rewards cards, keyed-in sales and business cards, get pushed into higher tiers. That's why tiered statements often show an effective rate far above the rate the business was quoted.

Pros

• Statements look simple.
• The headline rate looks low.

Cons

• Least transparent: you can't see what you're really paying above cost.
• Processors control tier assignments and can shift transactions into pricier buckets.
• Typically the highest total cost.

How do the three models compare side by side?

What does each model cost on a real example?

Take a hypothetical retail store processing $40,000 a month across 1,000 transactions (a $40 average ticket). Assume its blended interchange plus assessments works out to about 1.85% plus 10¢ per transaction. These are illustrative numbers, not quotes:

In this example, interchange-plus saves roughly $130 a month, or about $1,560 a year, over flat rate. The gap grows with volume. Run your own numbers with our savings calculator.

What about membership or subscription pricing?

Membership (or "subscription") pricing is a variant of interchange-plus: you pay a flat monthly fee, often $50–$200, plus interchange at cost and a small per-transaction fee with no percentage markup. It can be very cheap for higher-volume businesses and expensive for low-volume ones, since the monthly fee is fixed.

Where do cash discount and surcharging fit?

Cash discount and surcharge programs don't change the underlying pricing model; they change who pays it. Under these programs part or all of the card cost is passed to customers who pay with a credit card, within card brand rules and state law. Read our guide to cash discount programs to see if one fits your business.

Which pricing model should I choose?

• Under about $10,000 a month, or just starting out: flat-rate is often fine, simple and quick to set up.
• Over about $10,000 a month with a steady business: interchange-plus usually wins. Ask for the markup in writing.
• High volume ($100k+ a month): interchange-plus or membership pricing, negotiated hard.
• Currently on tiered pricing: request an interchange-plus quote and compare effective rates. The difference is often meaningful.

How do I check which model I'm on today?

Look at your statement. If you see line items like "Visa CPS Retail" or "MC Merit III" with separate markup lines, you're likely on interchange-plus. If you see "Qualified", "Mid-Qual" and "Non-Qual" sections, you're on tiered. If every transaction is charged the same percentage, it's flat-rate. Our guide on how to read your merchant statement walks through each section.

What questions should I ask a provider?

1. What is your exact markup over interchange, as a percentage and per transaction?
2. What monthly, annual, PCI, statement and batch fees apply?
3. Is there a contract term or early termination fee?
4. Is equipment purchased, leased or free with conditions?
5. Can you guarantee the markup won't change for a set period?

Want providers to compete for your business? Get a free quote: it takes about 60 seconds.