What Is Interchange-Plus Pricing and Why It Saves You Money

If you accept credit cards at your business, you are paying processing fees on every single transaction. But how those fees are calculated depends entirely on the pricing model your processor uses. Most business owners never question their pricing structure because the industry makes it deliberately difficult to understand. That complexity costs you real money every month. In this guide, we will explain how the major pricing models work, why interchange-plus pricing gives you the most transparency and savings, and how to determine whether switching could lower your costs.

How Credit Card Pricing Models Work

Every credit card transaction involves three layers of cost. The first is the interchange fee, which is set by the card networks (Visa, Mastercard, Discover, American Express) and paid to the bank that issued the customer's card. The second is the assessment fee, a small percentage charged by the card network itself for using its infrastructure. The third is the processor markup, which is the fee your payment processor charges for handling the transaction, providing your equipment, and supporting your account.

Interchange fees and assessment fees are non-negotiable. They are the same regardless of which processor you use. The only variable is the processor markup, and this is where the pricing model you are on makes an enormous difference. The three most common pricing models are interchange-plus, tiered pricing, and flat-rate pricing. Understanding the differences between them is the single most important step you can take toward reducing your credit card processing fees.

What Is Interchange-Plus Pricing?

Interchange-plus pricing, also called cost-plus pricing, is the most transparent pricing model available in the payment processing industry. It works by separating the wholesale cost of each transaction (interchange plus assessment) from the processor's markup. You can see exactly what the card networks charge and exactly what your processor charges on top.

Here is how a typical interchange-plus transaction breaks down. Suppose a customer pays with a Visa rewards credit card and the interchange rate for that specific card type is 1.65% plus $0.10 per transaction. The assessment fee from Visa is 0.14%. Your processor's markup is 0.20% plus $0.10. The total cost for that transaction would be 1.65% + 0.14% + 0.20% = 1.99%, plus $0.20 in per-transaction fees.

The key advantage of this model is that you always know what you are paying and why. If a transaction carries a higher interchange rate because the customer used a premium rewards card, you can see that clearly on your statement. If your processor raises their markup, that change is immediately visible. There is no way to hide costs in an interchange-plus model, which is precisely why many traditional processors prefer not to offer it.

Interchange-Plus vs. Tiered Pricing vs. Flat Rate

Tiered pricing is the model most commonly used by traditional payment processors, and it is the least transparent of the three. Under tiered pricing, your processor groups all transactions into categories, typically called qualified, mid-qualified, and non-qualified. Each tier has a different rate, and your processor decides which transactions fall into which tier.

The problem with tiered pricing is that the tier classifications are entirely at your processor's discretion. A transaction that should qualify for the lowest rate might be classified as mid-qualified or non-qualified, and you would never know the difference. This gives processors the ability to inflate your effective rate without changing your stated pricing. Many merchants on tiered pricing believe they are paying 1.79% when their effective rate, calculated by dividing total fees by total sales, is actually 2.8% to 3.5% or higher.

Flat-rate pricing is the model used by providers like Square and Stripe, where you pay a single rate on every transaction regardless of card type. Common flat rates are 2.6% + $0.10 for in-person transactions and 2.9% + $0.30 for online transactions. Flat-rate pricing is simple and predictable, which makes it appealing for very small businesses or those just getting started.

However, flat-rate pricing almost always costs more than interchange-plus for businesses processing more than $5,000 to $10,000 per month. The reason is straightforward: the flat rate must be set high enough for the processor to profit on every transaction, including those with the highest interchange rates. That means you are significantly overpaying on the majority of your transactions, particularly debit card transactions, which carry interchange rates well below 1%.

With interchange-plus, you pay the actual cost of each transaction plus a small, fixed markup. With tiered and flat-rate models, you pay whatever the processor decides to charge, and the true cost of the transaction is hidden from you.

How Much Can You Save with Interchange-Plus?

The savings from switching to interchange-plus pricing vary depending on your current pricing model, your transaction volume, and the mix of card types your customers use. That said, the typical business that switches from tiered pricing to interchange-plus sees savings of 20% to 40% on their monthly processing costs.

Consider a restaurant processing $40,000 per month in credit card sales. On tiered pricing with an effective rate of 3.2%, the monthly processing cost is $1,280. On interchange-plus with an effective rate of 2.1%, the monthly cost drops to $840. That is a savings of $440 per month, or $5,280 per year. For a business operating on thin margins, that amount can be the difference between a profitable year and a break-even one.

Businesses that accept a high volume of debit card transactions see even greater savings with interchange-plus. Debit interchange rates are regulated and typically fall between 0.05% + $0.21 and 0.05% + $0.22 for regulated debit cards. On a flat-rate model, you would still pay 2.6% on these transactions. On interchange-plus, you pay the actual debit interchange rate plus your processor's small markup, which might total 0.5% or less.

The best way to determine your potential savings is to request a free statement analysis. A reputable processor will review your current statement line by line and show you exactly how much you would save by switching to interchange-plus pricing.

Is Interchange-Plus Right for Your Business?

Interchange-plus pricing is the best choice for the vast majority of businesses that process credit card payments. It offers complete transparency, the lowest effective rates, and protection against hidden fee increases. If you process more than $5,000 per month in card sales, there is almost no scenario where tiered or flat-rate pricing will cost you less.

The only situation where flat-rate pricing might make sense is for a very new or very small business that values simplicity above all else and processes only a few thousand dollars per month. Even then, the savings from interchange-plus usually justify the slightly more detailed monthly statement.

If you are currently on tiered pricing, the case for switching is even more compelling. Tiered pricing was designed to benefit processors, not merchants. The lack of transparency makes it nearly impossible to verify that you are being charged fairly, and most businesses on tiered models are paying significantly more than they need to.

At Power Payment Solutions, all of our credit card processing clients receive interchange-plus pricing as standard. We believe that transparency is the foundation of a fair business relationship, and interchange-plus is the only pricing model that delivers it. Our markup is competitive, our statements are clear, and we never lock clients into long-term contracts. If you find a better deal, you are free to leave at any time.

If you are interested in learning more about how a cash discount program can further reduce or even eliminate your processing costs entirely, we are happy to walk you through the options. The first step is always the same: understanding what you are currently paying and why. From there, the path to lower costs becomes clear.

"Most businesses on tiered pricing are paying 30% to 50% more than they would on interchange-plus. The pricing model your processor uses matters just as much as the rates they quote you."