Flat-Rate vs. Interchange-Plus vs. Tiered Pricing

The three main pricing models for merchant processing differ in how fees are structured, how transparent they are, and which business types they tend to favor. Understanding the model on your current agreement helps you interpret your statement and compare quotes fairly.

Flat-rate pricing

A single blended percentage (and sometimes a per-transaction fee) is charged on all card sales, regardless of card type. The processor absorbs the variation in underlying interchange across card types.

Example (illustrative only): A flat-rate processor charges 2.6% + $0.10 per transaction. On a $50 sale, the fee is (0.026 × 50) + 0.10 = $1.40.

Who flat-rate pricing tends to suit

• Very small or new businesses with low monthly volume
• Businesses that value simple, predictable billing over lowest possible cost
• Businesses with mostly card-present debit transactions (may pay more than needed for these)

Drawback

Businesses with a large share of low-cost debit transactions or basic credit cards pay the same rate as those with premium rewards cards, often subsidizing higher-interchange card types without realizing it.

Interchange-plus pricing

Your processor passes through the actual interchange rate for each transaction type and charges a fixed markup on top. The markup is stated as a percentage plus a per-transaction fee (for example, interchange + 0.30% + $0.10).

Example (illustrative only): A card qualifies for a 1.65% + $0.10 interchange rate. With a 0.30% + $0.10 markup, the total fee on a $100 transaction is (1.65 + 0.30)% × 100 + $0.20 = $2.15.

Who interchange-plus pricing tends to suit

• Medium and larger businesses with enough volume to negotiate a competitive markup
• Businesses that want full transparency into what they pay for each card type
• Businesses with a mix of card types where passing through actual interchange is beneficial

Drawback

Statements are more complex. Costs vary month to month based on card mix. You still pay the network-set interchange rates, which are outside your processor's control.

Tiered pricing

The processor groups card types into two or three tiers — commonly "qualified," "mid-qualified," and "non-qualified" — each with a different rate. The processor decides which tier each transaction falls into.

Who tiered pricing tends to suit

Tiered pricing is simple to quote but the least transparent model, because the processor controls which transactions are classified at each tier. Many financial advisors and payment consultants consider it difficult to compare and generally less favorable to merchants than interchange-plus at comparable volumes.

Drawback

Most rewards cards and business cards are downgraded to mid-qualified or non-qualified tiers, often at a significantly higher rate than qualified. Without an interchange-plus statement, it is harder to verify whether downgrades are appropriate.

Side-by-side comparison

These generalizations do not apply in every case. Review your actual agreement and compare total costs at your specific volume and card mix. See How to Compare Merchant Processing Quotes.