Interchange-Plus vs. Flat-Rate vs. Tiered Pricing: Which Is Right for You?
Compare interchange-plus vs. flat-rate pricing, plus tiered rates: how each model works, what it costs as you grow and how to find your effective rate.
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On this page 10 sections
- Interchange and Assessments: The Cost Under Every Pricing Model
- Interchange-Plus Pricing: Actual Cost Plus a Disclosed Markup
- Flat-Rate Pricing: One Rate for Every Card
- Tiered Pricing: Qualified, Mid-Qualified and Non-Qualified Rates
- Interchange-Plus vs. Flat-Rate Pricing: Side-by-Side Comparison
- How to Tell Which Pricing Model You're On
- Which Pricing Model Fits Your Business?
- How to Compare Offers Fairly: Calculate Your Effective Rate
- Beyond Pricing Models: Programs That Offset Processing Costs
- Next Steps: Find Your Effective Rate
Key takeaways
- The underlying cost (interchange plus network assessments) is the same under every model. Only the packaging of the provider's markup changes.
- Interchange-plus is the most transparent model and usually the most economical at moderate to high volume.
- Flat-rate is simple and predictable, which suits low-volume or new businesses, but it can get expensive as you grow.
- Tiered pricing is the hardest to audit because the provider decides which transactions fall into which tier.
Two businesses with identical sales can pay very different amounts to accept cards. Often the difference isn't the quoted rate. It's the pricing model behind it. This guide compares interchange-plus vs. flat-rate pricing, along with tiered pricing. You'll learn how each model is calculated, which businesses each one tends to suit, how to spot your model on a statement and how to compare offers using your effective rate.
Interchange and Assessments: The Cost Under Every Pricing Model
Every card transaction carries two wholesale costs:
- Interchange, paid to the card-issuing bank
- Assessments, paid to the card network
These costs are the same no matter which provider you use. For a refresher on who gets paid at each step, see our step-by-step guide to how credit card processing works.
Your provider then adds its markup. A pricing model is simply the way that markup is packaged and presented to you. When you compare pricing models, you're comparing how clearly each one shows that markup and how it behaves as your sales and card mix change.
Interchange-Plus Pricing: Actual Cost Plus a Disclosed Markup
With interchange-plus (also called cost-plus), you pay the actual interchange and assessments on each transaction, plus a fixed, disclosed markup. The markup is usually a small percentage, a per-transaction fee or both.
Example format: interchange + assessments + 0.25% + $0.10 per transaction. (Illustrative only, not a quote.)
Pros
- It's the most transparent model. You can see exactly what goes to the banks and what goes to your provider.
- Your costs fall automatically when customers pay with lower-cost cards, such as basic debit.
- Comparing providers is simple because only the markup differs.
Cons
- Statements are longer and take some time to learn.
- Your monthly cost varies with your customers' card mix.
Often a good fit for: established businesses with steady monthly volume and anyone who wants to audit their costs.
Flat-Rate Pricing: One Rate for Every Card
With flat-rate pricing, every transaction costs the same percentage, sometimes plus a fixed fee, regardless of card type. Many app-based providers use this model.
Pros
- It's very simple. You know the cost of every sale in advance.
- Setup is easy, often with no monthly fees.
Cons
- The rate is set high enough to stay profitable on expensive rewards cards, so you overpay on low-cost cards.
- As your volume grows, the gap between flat-rate and interchange-plus can add up to real money.
Often a good fit for: new businesses, seasonal sellers and low-volume merchants who value simplicity over the lowest possible cost.
Tiered Pricing: Qualified, Mid-Qualified and Non-Qualified Rates
Tiered pricing sorts transactions into buckets, typically "qualified," "mid-qualified" and "non-qualified," each with a different rate. Quotes usually lead with the low qualified rate.
Pros
- Statements look simple.
Cons
- The provider decides which transactions land in each tier, and many common cards (rewards, business and keyed-in transactions) fall into the more expensive tiers.
- Tiered offers are hard to compare with other offers, and it's hard to tell what you're really paying.
Interchange-Plus vs. Flat-Rate Pricing: Side-by-Side Comparison
| Factor | Interchange-Plus | Flat-Rate | Tiered |
|---|---|---|---|
| Transparency | High | Medium | Low |
| Predictability | Medium | High | Medium |
| Cost at higher volume | Usually lowest | Often highest | Varies, often high |
| Easy to compare offers | Yes | Yes | No |
The trade-off is clear. Flat-rate buys predictability. Interchange-plus buys transparency and usually a lower cost as you grow. Tiered pricing offers neither strong transparency nor easy comparison.
How to Tell Which Pricing Model You're On
Pull your most recent processing statement and look for these clues:
- Interchange-plus: Your statement separates the wholesale costs (interchange and assessments) from your provider's markup. Expect more line items and more detail.
- Flat-rate: You see one percentage, possibly with a fixed per-transaction fee, applied the same way to every sale.
- Tiered: You see rates labeled "qualified," "mid-qualified" and "non-qualified."
If your statement shows qualified and non-qualified rates, you're on tiered pricing. It's worth asking for an interchange-plus comparison.
Which Pricing Model Fits Your Business?
Use these questions as a starting point:
- Are you new, seasonal or processing low volume? Flat-rate's simplicity may outweigh its higher cost for now.
- Is your monthly volume steady and growing? Interchange-plus is usually the more economical choice at moderate to high volume.
- Do you want to audit every dollar you pay? Of these three models, interchange-plus is the only one that shows the bank costs and the provider markup separately.
- Are you on tiered pricing today? Request a side-by-side comparison so you can see what your tiers are actually costing you.
Your needs can change over time. A model that made sense when you opened may stop making sense once your volume grows, so revisit your pricing model periodically.
How to Compare Offers Fairly: Calculate Your Effective Rate
Ignore headline rates and calculate your effective rate instead:
Effective rate = total processing fees for the month ÷ total card sales for the month
Illustrative example: If a business paid $2,000 in total processing fees on $80,000 in card sales, its effective rate would be $2,000 ÷ $80,000 = 2.5%. (Hypothetical figures for illustration only.)
Calculate this number from your current statement. Then ask any provider you're considering to estimate the same figure from your actual statement. That's the only apples-to-apples comparison, because it captures every fee regardless of how the pricing model packages them.
Questions to Ask Before You Switch
- Which pricing model is this offer based on?
- On interchange-plus, what exactly is the markup: a percentage, a per-transaction fee or both?
- On tiered pricing, which of my transactions would fall into each tier?
- Based on my current statement, what effective rate do you estimate I would pay?
Beyond Pricing Models: Programs That Offset Processing Costs
Some merchants reduce or offset some or all of their processing costs through compliant programs such as cash discount, dual pricing or surcharging (where permitted). These programs work very differently from one another. Read our guide to cash discount vs. dual pricing vs. surcharging before choosing one.
Rules vary. Surcharging in particular is subject to card network rules and state law, and requirements differ by state. For one example, see our guide to New York's credit card surcharge law and its posting requirements. This is general information, not legal advice. Confirm current rules with your provider and a qualified professional before launching any program.
You can also explore MannyPay's zero cost processing programs for eligible merchants.
Next Steps: Find Your Effective Rate
Whichever model you're on, your effective rate shows what you're really paying. Calculate yours from your latest statement using the formula above, then use it to judge any new offer.
When you're ready to compare, request a free processing quote from MannyPay. A MannyPay specialist will get back to you within one business day.
This article is for general educational purposes and is not legal, tax or financial advice. Card network rules and state laws change; confirm current requirements for your business.
