Interchange-Plus vs. Flat-Rate vs. Tiered Pricing: Which Is Right for Your Business?

The short answer: interchange-plus pricing passes the card networks’ actual costs through to you and adds a fixed, visible markup, which makes it the most transparent option for most established businesses. Flat-rate pricing is simple but usually costs more as you grow. Tiered pricing bundles everything into “qualified” and “non-qualified” buckets, and it tends to cost the most while being the hardest to check.

Every credit card processor in Orange County sells one of these three models, sometimes under a different name. Knowing which one you’re on is the first step to knowing whether you’re overpaying.

What Every Pricing Model Is Built On

Every card transaction carries the same underlying costs, whoever your processor is:

• Interchange — paid to the bank that issued the card. It varies with card type (debit, rewards, business, international) and how the card was taken (tapped, keyed, online).
• Assessments — small fees paid to Visa, Mastercard, Discover, and American Express.
• Processor markup — what your processor charges for its service.

The three pricing models only differ in how they package these costs and how much of the markup you can see.

How Does Interchange-Plus Pricing Work?

With interchange-plus (also called “cost-plus” or “pass-through” pricing), you pay the actual interchange and assessments on each transaction, plus a fixed markup — for example, 0.25% + $0.10. Your statement lists the interchange category for each card type, so you can verify what you paid.

Pros: fully transparent; you automatically benefit when customers use lower-cost cards such as debit; easy to compare between processors, because you only have to compare the markup.

Cons: statements are longer, and your monthly cost moves with your card mix.

Best for: most businesses processing more than a few thousand dollars a month, especially restaurants, retail, and service businesses with a lot of debit and in-person transactions.

How Does Flat-Rate Pricing Work?

Flat-rate pricing charges one rate for every transaction — for example, 2.9% + $0.30 online, or a slightly lower rate in person. This is the model used by Square, Stripe, PayPal, and similar platforms.

Pros: very simple; easy to predict; no setup or underwriting delays.

Cons: you pay the same rate for a low-cost debit card as for a premium rewards card, so the processor keeps the difference. As volume grows, the gap between flat-rate and interchange-plus usually becomes thousands of dollars a year. Aggregated platforms can also freeze accounts with little warning.

Best for: very new or very small businesses, pop-ups, and low-volume sellers.

How Does Tiered Pricing Work?

Tiered pricing sorts transactions into two or three buckets — typically “qualified,” “mid-qualified,” and “non-qualified” — each with its own rate. The processor decides which cards go into which bucket.

Pros: the “qualified” rate quoted at signup looks low.

Cons: most rewards, business, and keyed transactions get pushed into the more expensive tiers, so your real effective rate is often well above the quoted rate. Because interchange is hidden, you can’t tell how much of each tier is markup.

Best for: honestly, very few businesses. If your statement shows “non-qualified” surcharges on a large share of your volume, it’s worth a closer look.

How Do the Three Models Compare?

• Interchange-plus: highly transparent, with every cost itemized. Usually the lowest cost as you grow, and the easiest to compare, because you only compare the markup. Statements are detailed.
• Flat-rate: one simple rate, with the markup hidden inside it. Cost rises with volume, because low-cost cards are charged the same as expensive ones.
• Tiered: the least transparent, because buckets hide interchange. Often the most expensive, and nearly impossible to compare between processors.

How Do You Tell Which One You’re On?

Look at the fee section of your statement. If you see interchange category names like “Visa CPS Retail” or “MC Merit III,” you’re probably on interchange-plus. If you see the words “qualified” or “non-qualified,” you’re on tiered. If every transaction carries the same percentage, you’re on flat-rate.

Then work out your effective rate — total fees divided by total card sales — with our fee calculator. Our guide to reading your merchant statement walks through the rest.

Frequently Asked Questions

Is interchange-plus always cheaper than flat-rate?

Not for every business. Very small or brand-new businesses with low monthly volume may pay similar or slightly less on flat-rate, especially once monthly account fees are included. For most established businesses, interchange-plus costs less.

Why do processors still offer tiered pricing?

Because it’s profitable. Tiered pricing lets a processor quote a low headline rate while moving most transactions into higher-priced tiers.

Can I switch from tiered to interchange-plus with my current processor?

Sometimes. Ask for it in writing. If they won’t, or the markup they offer is high, a free statement review will show you what the switch could save.

What is a fair interchange-plus markup?

It depends on your volume, average ticket size, and industry. A lower markup isn’t the whole story either — monthly fees, equipment costs, and contract terms all matter.