Interchange-Plus, Tiered, or Flat-Rate: Which Pricing Model Is Quietly Costing You

Almost every complaint I hear about processing costs traces back to one thing the business owner never understood: how their pricing is structured.

There are three common models, and the one you’re on determines how much room your processor has to make money at your expense.

The foundation underneath all of them is interchange — the non-negotiable fee set by the card networks (Visa, Mastercard, and the rest) that goes to the bank that issued your customer’s card. Nobody escapes interchange. It’s the same for your processor as it is for the giant across the street. What differs is the markup your processor adds on top, and how honestly they show it to you.

Interchange-plus pricing shows you interchange as a pass-through cost, then adds a clearly stated markup — for example, interchange plus a fixed percentage and a few cents per transaction. The advantage is transparency: you can see the wholesale cost and the exact markup, which means you can actually evaluate whether you’re being treated fairly. This is the model I steer most businesses toward, because it’s the only one that doesn’t require you to trust that you’re not being gouged.

Tiered pricing sorts your transactions into buckets — usually “qualified,” “mid-qualified,” and “non-qualified” — each with a different rate. It sounds organized. In practice, the processor decides which transactions land in which bucket, and the expensive buckets are where the margin hides. A rewards card, a keyed-in transaction, a business card — any of these can get bumped to a pricier tier. You quoted rate is the qualified rate; your effective rate is something else entirely. This is the model most likely to be quietly costing you.

Flat-rate pricing — the Square and Stripe approach — charges one simple percentage for everything. Its virtue is honesty and simplicity: you always know what a sale costs, and for a small or new business that predictability is worth something. The catch is that at higher volume, the flat rate usually leaves money on the table compared to interchange-plus, because you’re paying the same markup on a cheap debit transaction as on an expensive rewards card. Simple isn’t the same as cheap.

There’s no universally “best” model — it depends on your volume, your average ticket, and the mix of cards your customers use. But there is a best principle: you should always be able to see what interchange costs and what your processor is adding. If your pricing structure makes that impossible to see, that’s not an accident. It’s the product.

Not sure which model you’re on? Send me a recent statement and I’ll tell you!