Why Interchange-Plus Pricing Is Almost Always Better for Merchants
If you ask a payment professional to recommend a pricing model for a merchant, virtually every knowledgeable one will say the same thing: interchange-plus. It is the gold standard for transparent, merchant-friendly pricing. Yet the majority of small business merchants are still on tiered pricing—paying more for their processing while having less visibility into why.
The reason is not that tiered pricing is better. It is that tiered pricing is easier to sell. A conversation about a single rate is simpler than explaining interchange. A rate that looks low is more compelling than a detailed breakdown that requires context to interpret. Merchants who do not know what they are looking for sign tiered agreements and often stay on them for years.
The Three-Tier Shell Game
Tiered pricing groups all transactions into categories—qualified, mid-qualified, and non-qualified—and charges a different rate for each. The qualified rate is what gets advertised. It applies to basic consumer debit card swipes and similar low-cost transactions. The rates climb from there.
Here is the catch: your processor defines which transactions fall into which tier. Rewards cards—the ones your customers use most because they want airline miles or cashback—typically fall into mid-qualified or non-qualified tiers. Business cards, premium cards, and keyed-in transactions frequently hit non-qualified rates that can exceed 3.5% or even 4%.
Depending on your customer base and card mix, a majority of your transactions may never reach the advertised qualified rate. You end up paying blended rates that significantly exceed what the advertised quote suggested.
What Interchange-Plus Actually Means
Interchange is the fee the card networks—Visa, Mastercard, Discover, Amex—charge for every transaction. It varies by card type, transaction type, and merchant category. A basic consumer Visa debit card in person might cost 0.05% plus $0.21. A premium travel rewards Visa in person might cost 2.10% plus $0.10. The differences reflect actual network costs.
Interchange-plus pricing passes through these actual costs and adds a fixed markup—your processor margin. A typical interchange-plus quote might read as interchange plus 0.20% plus $0.10. You pay exactly what the network charges plus a transparent, fixed amount.
The total cost varies by transaction, just as it does with tiered pricing. But the variation reflects real differences in what each card type actually costs to process—not arbitrary tier assignments your processor controls.
The Transparency Benefit
When you receive an interchange-plus statement, you can see exactly what every card type cost you and exactly what your processor added. If a category seems expensive, you can research why—is it the card type? The transaction method? A category code that does not match your actual business?
This visibility allows you to have informed conversations with your processor and to understand whether your specific card mix is well-served by your current pricing. It also makes comparing processors meaningful: when every processor shows you the same interchange pass-through, the only variable is their markup.
When Flat-Rate Pricing Makes Sense
There is a third model worth mentioning: flat-rate pricing. Services like Square and Stripe charge a single percentage regardless of card type. Flat-rate pricing is simple, highly predictable, and often the best choice for very new businesses, very low-volume operations, or merchants who strongly prefer predictability over optimization.
For businesses processing more than $10,000 monthly, flat-rate pricing almost always costs more than interchange-plus. The flat rate is set high enough to cover the processor costs on expensive cards while generating margin on cheap ones. As volume grows, the excess margin the processor collects on those low-cost transactions becomes meaningful.
How to Switch
Switching from tiered to interchange-plus does not always require changing processors, though it sometimes does. Ask your current processor whether they offer interchange-plus pricing. Many do but default to tiered pricing because merchants rarely ask. If they offer it, request a side-by-side comparison using your actual recent statement to model what you would have paid under each model.
If your current processor does not offer interchange-plus, or if the markup they quote is not competitive, this is precisely the conversation that justifies getting outside quotes. We do this analysis for merchants regularly and the annual savings from switching pricing models can run into thousands of dollars for modest-volume businesses.