Interchange-Plus vs Flat-Rate Pricing: Which Saves You More Money?

Interchange-Plus vs Flat-Rate Pricing: Which Saves You More Money?

The pricing model your payment processor uses can cost or save you thousands of dollars per year. Most small businesses default to flat-rate pricing because it's simple — but for businesses doing meaningful volume, interchange-plus is almost always cheaper.

What Flat-Rate Pricing Actually Means

With flat-rate pricing, you pay one fixed percentage plus a per-transaction fee on every transaction, regardless of the card type used. Stripe charges 2.9% + $0.30; Square charges 2.6% + $0.10 in-person.

The processor collects your flat rate, pays the actual interchange to the card networks, and keeps the difference as profit. On a basic debit card with 0.05% interchange, the processor keeps nearly 2.85% of that transaction. On a premium rewards card with 2.1% interchange, the processor keeps much less.

The convenience of flat-rate pricing comes at a cost: you're subsidizing other merchants' cheap transactions when your customers use premium cards.

What Interchange-Plus Pricing Actually Means

Interchange-plus (also written as "cost-plus") means you pay exactly what the card networks charge in interchange, plus a fixed markup from your processor.

A competitive interchange-plus rate looks like: interchange + 0.25% + $0.10

Your statement breaks out every transaction with the actual interchange category and rate. You can see exactly what Visa or Mastercard charged, and exactly what your processor added on top.

The Math: Real Dollar Comparisons

Scenario 1: $5,000/month in card volume

Flat-rate at 2.9% + $0.30 (assuming 100 transactions):

• Processing fees: $145 + $30 = $175/month

Interchange-plus at avg 1.8% interchange + 0.25% + $0.10:

• Interchange: $90
• Markup: $12.50 + $10 = $22.50
• Total: $112.50/month
• Savings: $62.50/month, $750/year

Scenario 2: $50,000/month in card volume

Flat-rate at 2.9% + $0.30 (assuming 1,000 transactions):

• Processing fees: $1,450 + $300 = $1,750/month

Interchange-plus at avg 1.8% interchange + 0.25% + $0.10:

• Interchange: $900
• Markup: $125 + $100 = $225
• Total: $1,125/month
• Savings: $625/month, $7,500/year

When Flat-Rate Is Actually Better

Despite the math above, flat-rate pricing has legitimate advantages for some merchants:

Very low volume: If you process under $3,000-5,000/month, the simplicity of flat-rate outweighs the small dollar savings, especially if interchange-plus requires a monthly fee.

High debit card mix: If most of your customers pay with basic debit cards, flat-rate processors sometimes charge more than interchange-plus for those low-interchange transactions. But practically, this only matters at significant volume.

Small average transaction sizes: The per-transaction fee component of interchange-plus can add up on small tickets. A coffee shop doing $5 transactions benefits less from interchange-plus than a furniture store doing $500 transactions.

The Tiered Pricing Trap

There's a third option many processors offer that you should always avoid: tiered pricing.

Tiered pricing categorizes cards into three buckets — qualified, mid-qualified, and non-qualified — and charges different rates for each. The "qualified" rate looks attractive, but processors define the tiers to maximize their profit. Premium cards, corporate cards, and manually keyed transactions get "downgraded" to higher tiers, and the overall effective rate is almost always worse than both flat-rate and interchange-plus.

If a processor proposes tiered pricing, ask for interchange-plus instead. If they won't offer it, walk away.

The Crossover Point

For most businesses, interchange-plus becomes clearly better at approximately $15,000-20,000/month in card volume. Below that, the simplicity of flat-rate often makes sense unless you're comfortable monitoring interchange statements.

If you're already above that threshold and on flat-rate pricing, request a quote from an interchange-plus processor. The switch typically pays for itself in the first month.