The pricing model is simply how your processor bundles those two things together. There are three common ones.
Flat rate
You pay one percentage plus a few cents on every sale, no matter what card the customer uses. This is how most "sign up in five minutes" providers price.
The upside is simplicity: you always know the rate, and there is usually no monthly fee. The downside is that one averaged rate means cheap transactions, like debit cards, pay the same as expensive ones. As your sales grow, you keep paying for that averaging.
Tiered
Your processor sorts every sale into buckets, usually called qualified, mid-qualified, and non-qualified, each with its own rate. You are often quoted the low qualified rate.
The catch is that the processor decides which sales land in which bucket. Rewards cards, business cards, and typed-in sales often fall into the more expensive tiers, so your real cost can be much higher than the rate you were quoted. Tiered pricing is the hardest of the three to check.
Interchange-plus (also called cost-plus)
The interchange and card network fees pass through at cost, exactly as the card networks set them, and the processor adds a fixed, visible markup on top, for example a small percentage plus a few cents per sale.
This is the most transparent model, because you can see what the card networks charged and what the processor kept. It is also usually the cheapest once you process steady volume. The tradeoff is a longer statement, since every card type shows up as its own line.
Side by side
| Flat rate | Tiered | Interchange-plus | |
|---|---|---|---|
| How it works | One rate on every sale | Sales sorted into rate buckets | Real cost plus a fixed markup |
| Easy to understand | Yes | No | Once you know what to look for |
| Easy to check | Yes | Hard | Yes |
| Usually fits | Low volume, new businesses | Rarely the best choice | Steady or growing volume |
So which one fits you?
Roughly speaking, below about $5,000 to $8,000 a month in card sales, flat rate is often the sensible choice. The difference is a few dollars a month, and simplicity is worth something. I will tell you that if it is true for you.
Above that, interchange-plus usually starts to come out ahead, and the gap tends to grow with your volume. If you are on tiered pricing, it is worth asking to be moved to interchange-plus, or at least finding out how your sales are being sorted.
Find out what you are on
Your statement tells you which model you are on, if you know where to look. Send it to me and I will tell you which one you have, what your effective rate is, and whether a different model would cost you less.