Two businesses processing the same volume with the same card mix can pay wildly different amounts—one might pay $400/month while the other pays $1,100. The difference? Their pricing model. Here's everything you need to know.
Interchange-Plus Pricing
$1,050/mo
$50,000 monthly volume
Effective rate: 2.1%
Tiered Pricing
$1,400/mo
$50,000 monthly volume
Effective rate: 2.8%
Annual difference: $4,200 saved with interchange-plus
Your pricing model determines how your processor packages and charges fees. It's the difference between paying near-cost rates with a small transparent markup, or paying inflated rates with hidden margins baked in.
Interchange-plus (also called "IC+" or "cost-plus") is a transparent pricing structure where you pay:
Actual Interchange Rate + Processor Markup
Example: If a transaction has 1.80% + $0.10 interchange, and your processor charges 0.25% + $0.10 markup, you pay 2.05% + $0.20 total.
Every transaction on your statement shows the actual interchange rate charged by Visa/Mastercard, plus your processor's fixed markup. Nothing is hidden.
Complete transparency
You see exactly what goes to banks vs. what your processor charges.
Lower total costs
Typically 20-40% cheaper than tiered pricing for the same volume.
Predictable markup
Your processor's markup never changes (unless you renegotiate). Only interchange varies by card type.
Easy to negotiate
Markup is clearly stated, making it straightforward to compare offers and negotiate.
More complex statements
Your statement shows 20+ different interchange rates instead of just 3 tiers. Takes time to understand initially.
Rate fluctuations
Your effective rate varies slightly month-to-month based on card mix (more rewards cards = higher cost).
Transaction: $100 sale on a Visa rewards credit card (card-present)
Interchange (non-negotiable): 1.65% + $0.10 = $1.75
Assessment (non-negotiable): 0.14% = $0.14
Processor markup (negotiable): 0.25% + $0.10 = $0.35
Total fees: $2.24 (2.24% effective)
You receive: $97.76
Tiered pricing groups transactions into three buckets with different rates:
Qualified (lowest rate)
Example: 1.59% + $0.10. Typically only applies to basic debit cards swiped in-person.
Mid-Qualified (middle rate)
Example: 2.29% + $0.15. Credit cards and some rewards cards.
Non-Qualified (highest rate)
Example: 3.49% + $0.25. Rewards cards, e-commerce, or manually keyed transactions.
The problem? Processors control which transactions fall into which bucket, and they intentionally downgrade most transactions to higher tiers to increase their profit.
Processors advertise the "qualified" rate (e.g., "Starting at 1.59%!") but in practice:
Your effective rate ends up 0.5-1.0% higher than the quoted "qualified" rate. That's where processors hide their profit.
Simpler statements
Only shows 3 rates instead of 20+ interchange rates. Easier to read at a glance.
Fixed tier rates
Rates don't change month-to-month (though which bucket your transactions fall into does).
Hidden markup
You can't see what the processor is actually charging you vs. what goes to banks.
Inflated costs
Typically 20-40% more expensive than interchange-plus for the same transactions.
Intentional downgrading
Processors engineer the buckets to maximize downgrades and their profit.
Hard to negotiate
Since markup is hidden in tier rates, it's difficult to compare or negotiate.
Transaction: $100 sale on a Visa rewards credit card (card-present)
What you see on statement: "Mid-Qualified: 2.29% + $0.15"
Actual interchange (hidden from you): 1.65% + $0.10 = $1.75
Assessment (hidden from you): 0.14% = $0.14
Processor's hidden markup: $2.44 - $1.89 = $0.55
Total fees: $2.44 (2.44% effective)
You receive: $97.56
$0.20 more than interchange-plus for the same transaction (9% higher cost)
Almost no one. Tiered pricing is rarely the best choice. The only scenarios where it might be acceptable:
For 95% of businesses, interchange-plus or flat-rate is better than tiered.
| Factor | Interchange-Plus | Tiered Pricing |
|---|---|---|
| Transparency | Fully transparent See exact interchange + markup | Hidden costs Markup buried in tier rates |
| Total Cost | Lower Typical savings: 20-40% | Higher Inflated tier rates add up |
| Statement Complexity | More detailed Shows every interchange rate | Simpler Only shows 3 tier rates |
| Negotiability | Highly negotiable Markup is clearly visible | Hard to negotiate Markup is hidden |
| Rate Predictability | Variable Rates change with interchange | Fixed tiers But most txns downgraded |
| Best For | $10K+ monthly Any business wanting savings | Almost never Usually not competitive |
| Typical Markup | 0.15% - 0.40% Plus 5-15¢ per transaction | 0.50% - 1.50% Hidden in tier rates |
Here's what businesses with different monthly volumes actually pay under each model. These numbers assume a typical card mix (40% debit, 60% credit/rewards).
| Monthly Volume | Interchange-Plus (IC + 0.25% + 10¢) | Tiered Pricing (2.25% effective) | Monthly Savings | Annual Savings |
|---|---|---|---|---|
| $25,000 | $587 | $737 | $150 | $1,800 |
| $50,000 | $1,050 | $1,400 | $350 | $4,200 |
| $100,000 | $2,050 | $2,750 | $700 | $8,400 |
* Assumes typical card mix (40% debit, 60% credit/rewards). Actual costs vary by transaction type and card mix.
The savings add up fast
A business processing $100,000 monthly saves $8,400 per year by switching from tiered to interchange-plus. That's $8,400 in pure profit that can be reinvested in your business.
Example processors: Square (2.6% + 10¢), Stripe (2.9% + 30¢), PayPal (2.99% + 49¢)
How it works: One simple rate for all transactions, no matter the card type.
When it makes sense: Startups and businesses under $15K monthly volume. Zero setup, no monthly fees, no contracts. Simplicity is worth the slight premium.
When to switch: Once you're consistently processing $20K+ monthly, interchange-plus will save you $200-400/month.
How it works: Fixed monthly fee (e.g., $99-$299) + interchange pass-through with zero processor markup.
When it makes sense: High-volume businesses ($50K+ monthly) with consistent processing. You pay for the infrastructure instead of per-transaction markup.
Math: If processor markup on interchange-plus would cost you $150+/month, subscription models at $99-149/month can save money.
How it works: Pass processing fees to customers who pay with cards. Offer a discount (or charge a fee) for cash payments.
Legality: Legal in most US states, but you must follow card network rules and post clear signage.
Tradeoffs: Eliminates processing costs but may reduce customer satisfaction or conversion rates. Works well for businesses with high average tickets or local customer bases.
If you're on tiered pricing and processing $10,000+ monthly, switching to interchange-plus could save you $100-$700+ per month.
Get a free analysis to see your current pricing model, what you're actually paying, and how much you'd save by switching. No obligation, no sales calls—just data.