Introduction
Choosing the right pricing model for your payment processing can save—or cost—you thousands of dollars per year. The two most common structures are Interchange-Plus and Flat-Rate pricing. While Flat-Rate pricing may seem simpler, it could be costing your business more than you realize. This post will break down both models and help you determine which is best for your business.
1. Understanding Flat-Rate Pricing
Flat-rate pricing is straightforward and predictable—you pay the same percentage per transaction, no matter what type of card your customer uses.
- Example: A provider like Square or Stripe might charge 2.9% + $0.30 per transaction.
- You always know what you’ll pay, but you might be overpaying for certain card types.
Pros of Flat-Rate Pricing
- Simple to understand with no hidden fees.
- Good for small businesses with low transaction volumes.
- No need to worry about card type or transaction method.
Cons of Flat-Rate Pricing
- Higher costs for debit and lower-cost credit cards, where interchange rates are lower.
- Not scalable for high-volume businesses that want cost control.
2. Understanding Interchange-Plus Pricing
Interchange-Plus pricing is more transparent but slightly more complex.
- Instead of a fixed percentage, you pay the actual interchange fee set by Visa/Mastercard plus a small markup from the processor.
- Example: Interchange (1.8%) + Processor Markup (0.25%) = 2.05% Total Fee
Pros of Interchange-Plus Pricing
- Lower costs for businesses with high transaction volume.
- Transparent breakdown of fees—no hidden markups.
- Allows negotiation of processor markup fees.
Cons of Interchange-Plus Pricing
- Monthly fees may apply (some processors charge $10-$30/month).
- Pricing fluctuates based on the type of card used.
3. Which One Is Right for Your Business?
- Run a cost comparison: Take your average monthly volume and compare costs using both models.