The monthly credit card processing statement hits your inbox, and there it is again – a jumble of percentages, fees, and terms that might as well be written in ancient hieroglyphics.

If you’re like most business owners, you’re probably wondering if you’re getting the best deal or if you’re leaving money on the table.

We’ve spent years helping businesses optimize their payment processing costs. Here’s what we tell all our clients: understanding your pricing model is the first step to reducing your processing costs.

In this guide, we’ll break down the three main pricing models that processors use – interchange plus pricing vs tiered pricing vs flate-rate – and show you exactly how to choose the right one for your business. No complex jargon, no sales pitch – just straightforward advice from someone who’s seen it all in the payment processing trenches.

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Payment Processing Basics

Before diving into the pricing models, let’s get real about what you’re actually paying for. Every time a customer swipes, dips, or taps their card, your business sets off a complex chain of transactions – and everyone wants their cut.

Base Costs: The Non-Negotiables

Think of interchange fees as the wholesale cost of processing credit cards. These fees make up the biggest chunk of what you pay, and they go straight to the card-issuing banks.

Whether you’re working with a Payment Service Provider (PSP) like Stripe or a payment processor through your merchant account, they’re all paying the same interchange rates – no exceptions. The card networks (Visa, Mastercard, etc.) set these rates, and they update them twice a year.

Card network assessment fees come next. Visa, Mastercard, Discover, and American Express charge these fees for using their networks. It’s like a toll for driving on their highway, and every business pays it.

The Processor’s Cut

Here’s where things get interesting – and where you have room to negotiate. Processor markup is how payment processors make their money.

This markup can take different forms depending on your pricing model, and it’s the key to understanding whether you’re getting a good deal.

BREAK DOWN YOUR MERCHANT STATEMENT

Interchange Plus Pricing: The Transparent Choice

Think of interchange plus as buying a car with a fully itemized price breakdown, showing exactly what the dealer paid and their markup.

How It Works

Every transaction breaks down into two clear components:

• The interchange fee (the wholesale cost set by card networks)
• The processor’s markup (a fixed percentage and per-transaction fee)

For example, when you process a $100 transaction, you’ll see something like:

• Interchange: 1.65% + $0.10
• Processor markup: 0.25% + $0.10
• Total cost: 1.90% + $0.20

The Power of Transparency

What makes interchange plus unique is that you’ll see these exact breakdowns on your statement. No hidden fees, no mysterious charges. When interchange rates drop (which happens twice a year), you automatically benefit from the savings.

Perfect For:

• Mid to high-volume merchants
• Businesses with a dedicated accounting team
• Companies wanting maximum cost control
• B2B businesses processing corporate cards

The Advantages You’ll See

We’ve helped dozens of businesses switch to interchange plus, and they consistently benefit from:

• Lower overall processing costs for most businesses
• Complete transparency in pricing
• Direct savings when interchange rates decrease
• Better negotiating position with processors
• True cost comparison between different processor offers

The Trade-offs to Consider

We always tell our clients to consider these factors before switching:

• Monthly statements are more detailed and complex
• Costs vary month-to-month based on card types used
• Can comes with a monthly fee ($10-$30)
• Requires more time to review and understand statements

Pro Tips from the Trenches

After years of analyzing processing statements, here’s what we’ve learned:

• Negotiate the markup aggressively – processors have room to move
• Watch for processors who try to add hidden fees
• Request interchange reductions for debit transactions
• Review your statement monthly to catch any unexpected changes

OPEN AN INTERCHANGE PLUS ACCOUNT TODAY

Flat Rate Pricing: Simplicity at a Price

When advising new business owners or startups, we often start by explaining flat rate pricing. It’s the payment processing equivalent of Netflix – one simple subscription rate, no surprises, no complicated math.

How It Works

Flat rate pricing strips away all the complexity of interchange fees and markups, giving you one consistent rate regardless of card type or transaction method. The most common structures you’ll encounter are:

• Card-present transactions (in-store): 2.6% – 2.9% per transaction
• Online/keyed transactions: 2.9% + $0.30 per transaction
• Alternative options: Monthly subscription + lower per-transaction fee

Why Small Businesses Love It

I recently helped a coffee shop owner set up their payment processing, and flat rate pricing was perfect for their needs. Here’s why:

• Simple bookkeeping and predictable costs
• Clear pricing makes budgeting straightforward
• No surprises when customers use rewards cards

When Flat Rate Makes Sense

You’ll benefit most from flat rate pricing if:

• Your monthly processing volume is under $10,000
• You’re just starting your business
• You prefer predictability over optimizing costs
• You process many small-ticket transactions
• You don’t want to deal with monthly fees

The Cost of Convenience

Here’s what most processors won’t tell you upfront: flat rate pricing builds in a cushion to cover high-cost cards. Let’s break down a real example:

A $100 transaction on Square (2.6% flat rate):

• Your cost: $2.60
• Actual interchange might be: $1.65
• The difference: $0.95 extra paid for simplicity

Hidden Benefits

Despite the higher rates, flat rate pricing offers some unexpected advantages:

• Protection from card brand fee increases
• No PCI compliance fees
• Often includes free payment hardware
• Built-in fraud protection and chargeback handling

When to Consider Switching

We like to advise clients to reconsider flat rate pricing when:

• Monthly processing exceeds $10,000
• Average transaction size is over $100
• Most customers use just one payment method, predominantly
• They’re comfortable with more complex pricing models

Pro Tips for Flat Rate Processing

After helping hundreds of businesses optimize their payment processing, here’s what we’ve learned about flat rate pricing:

• Compare total costs, not just rates (including hardware and software)
• Watch for volume discounts some processors offer
• Consider specialized flat rate programs for your industry
• Calculate your effective rate quarterly to ensure it still makes sense

SEE IF FLAT-RATE PRICING IS RIGHT FOR YOU

Tiered Pricing: The Traditional Model

Tiered pricing is like a magic trick. It looks simple on the surface, but there’s always more going on behind the scenes.

As someone who’s analyzed thousands of merchant statements, I can tell you this model often benefits the processor more than the merchant—but not always!

How It Works

Processors group transactions into three main tiers:

• Qualified (lowest rates): 1.79% – 1.99%
• Mid-qualified: 2.19% – 2.99%
• Non-qualified (highest rates): 2.89% – 3.49%

Here’s the catch – your processor decides which tier each transaction falls into, and they don’t always tell you their qualification criteria upfront.

The Classification Game

Let’s use an example. A retail client came is confused about their high processing costs. Their processor advertised a qualified rate of 1.79%, but their statement told a different story. Only 20% of transactions qualified for the lowest rate, 45% fell into mid-qualified, and 35% landed in non-qualified.

Their effective rate is actually 2.89% – significantly higher than what they expected.

When Tiered Pricing Makes Sense

Despite its drawbacks, tiered pricing can work for:

• Businesses with consistent transaction types
• Merchants processing primarily non-rewards cards
• Those who value simpler statements over optimal pricing
• Businesses with predictable customer payment methods

The Hidden Costs

Here’s what most sales reps won’t tell you about tiered pricing:

• Processors can move transactions between tiers without notice
• Premium cards almost always fall into higher tiers
• Rate increases often happen through tier reclassification
• Monthly fees and additional charges are common

Real-World Impact

Let’s break down a $100 transaction across different card types:

• Regular debit card (qualified): $1.79
• Rewards credit card (mid-qualified): $2.49
• Corporate card (non-qualified): $3.29

With the growing popularity of rewards cards, most businesses see their effective rate climb steadily over time.

Pro Tips for Tiered Pricing Users

If you’re stuck in a tiered pricing contract or considering one, here’s my advice:

• Request a detailed breakdown of qualification criteria
• Monitor your tier distribution monthly
• Ask for a cap on non-qualified transactions
• Compare your effective rate against interchange plus alternatives

SEE IF TIERED PRICING BENEFITS YOUR BUSINESS

Choosing the Right Model for Your Business

Here’s a straightforward framework to help you choose the right pricing model. Let’s break it down by business type and needs.

For New Businesses (Under $5,000 Monthly)

If you’re just starting out, flat rate pricing is your best friend. Here’s why:

• No monthly fees eating into your initial profits
• Predictable costs for easier budgeting
• Simple statements that won’t overwhelm you
• Built-in fraud protection and chargeback handling

For Growing Businesses ($5,000 – $20,000 Monthly)

As your volume grows, you’ll want to consider interchange plus pricing:

• Transparency helps you understand and control costs
• Lower overall processing costs compared to flat rate
• Direct benefits when interchange rates decrease
• Better negotiating position with processors

For Established Businesses (Over $20,000 Monthly)

At this level, interchange plus is almost always your best choice:

• Substantial savings on processing fees
• Complete cost transparency
• Maximum control over your processing costs
• Ability to negotiate better markup rates

Special Considerations

Your business type matters as much as your volume:

E-commerce Businesses:

• Look for processors with strong online payment gateway compatibility
• Consider providers that support multiple payment methods
• Prioritize fraud prevention features

Retail Stores:

• Focus on reliable in-store solutions
• Consider hardware costs and compatibility
• Look for quick settlement times

B2B Companies:

• Choose processors experienced with corporate cards
• Look for Level 2/3 processing capabilities
• Consider ACH and bank transfer options

Pro Tips for Success

Whatever model you choose, follow these guidelines:

• Review your statements monthly to catch unexpected changes
• Negotiate rates annually as your volume grows
• Watch for processors who try to add hidden fees
• Consider the total cost of ownership, including hardware and software

Remember, the right pricing model can significantly impact your bottom line. Don’t be afraid to switch processors if you find a better fit for your business’s evolving needs.

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