Your pricing model matters more than the specific rate you were quoted when you signed up. Two merchants can be told they're paying "2.9%" and end up with wildly different effective costs by the end of the month. That's because the percentage is only part of the story — the structure underneath it determines whether that number is fair or a floor.
There are three pricing models you'll encounter in merchant services: flat rate, tiered, and interchange plus. Here's what each one actually means, who it's good for, and how to tell which one you're currently on.
Model 1: Flat Rate
Flat rate is exactly what it sounds like — you pay one percentage on every transaction, regardless of the card type, how it was used, or anything else. Square, Stripe, and PayPal are the most well-known examples, typically charging around 2.6% + $0.10 per transaction for card-present sales.
The appeal is obvious: it's simple. You know what every transaction costs before it happens. There's no statement to decode, no line items to trace.
The problem is how the processor makes that simplicity possible. Interchange — the underlying cost set by the card networks — varies by card type and transaction type. A basic debit card might cost the processor a fraction of a percent to accept. A premium travel rewards card costs significantly more. Flat rate processors charge you the same either way, which means on every debit card transaction, they're capturing the spread between your flat rate and what the network actually charges. The more you process, and the more your customers use lower-cost cards, the more that spread costs you.
Flat rate is built for simplicity, not savings. The processor guarantees a predictable margin by pricing high enough to cover every possible card type — you're subsidizing that guarantee.
Good for: brand new businesses, very low volume, highly variable sales, businesses that want zero complexity.
Bad for: any business processing consistent volume with a real card mix.
Model 2: Tiered Pricing
Tiered pricing is the model most commonly sold through traditional banks and many ISOs. Transactions are sorted into buckets — typically "qualified," "mid-qualified," and "non-qualified" — each with its own rate. The qualified rate is what gets quoted in the sales pitch. It's almost never what most merchants actually pay.
Here's the issue: the criteria for qualifying a transaction are set by the processor, not by the card networks. What counts as "qualified" varies, and it's written in your agreement in language that's designed to be skimmed. In practice, rewards cards, keyed-in transactions, corporate cards, and purchasing cards — a significant portion of many businesses' volume — end up in mid- or non-qualified tiers.
When you sign up and hear "your rate is 1.79%," they're quoting the qualified tier. What they're not telling you is that a large portion of your actual transactions will settle at 2.49% or higher because they got "downgraded."
Tiered pricing was designed to appear simple while giving the processor maximum flexibility to profit on your transaction mix. It's the least transparent model and rarely benefits the merchant.
Good for: the processor.
Bad for: almost every merchant, almost always.
Model 3: Interchange Plus (Cost Plus)
Interchange plus — also called "cost plus" or "IC+" — is the most transparent pricing model available. Instead of blending everything into a flat rate or sorting transactions into opaque tiers, you pay two things: the actual interchange rate for each transaction (set by the card network, passed through at cost) plus a fixed markup from the processor.
That markup is the same regardless of card type or transaction method. It's the processor's margin, disclosed clearly, applied consistently.
On an IC+ statement, you can see exactly what the network charged for each interchange category and exactly what the processor added on top. You can verify both. You can compare one processor's markup against another's on an apples-to-apples basis. You can't do that with flat rate or tiered pricing.
The tradeoff is that IC+ statements are more complex to read — there are many line items because interchange has many categories. But complexity in the right direction is better than simplicity that hides cost.
Interchange plus is almost never the default offer. Processors know it's harder to mark up aggressively on a transparent structure. But it's almost always available if you ask — or if you're working with a consultant who negotiates on your behalf.
Good for: established businesses processing consistent volume who want to know what they're actually paying.
Bad for: nobody — but it requires willingness to engage with a slightly more complex statement.
How to Tell Which Model You're Currently On
Pull out a recent processing statement and look for these signals:
- Few line items, one or two rates: You're probably on flat rate.
- You see the words "qualified," "mid-qual," or "non-qualified": You're on tiered pricing.
- You see "interchange" as a pass-through item with a separate "markup," "basis points," or "discount rate" line: You're on interchange plus.
If your statement is hard to read and you're not sure — that itself is a signal. IC+ statements are more detailed, but they're interpretable. If you can't figure out what you're being charged or why, that usually means tiered pricing is at work.
Which Model Should You Be On?
If your business is new, low-volume, or just getting started with card acceptance, flat rate's simplicity makes sense. Keep it simple until you have a transaction history to analyze.
Once you're processing consistent monthly volume, interchange plus is almost always the better structure. The more you process, the more the spread in flat rate costs you, and the more it's worth having your actual costs visible and negotiable.
Tiered pricing is rarely the right answer at any volume. If you're on it, it's worth understanding what an IC+ structure would actually cost you based on your real transaction mix.
That's exactly what a statement audit shows. We pull your actual numbers, run them through an IC+ model, and tell you whether switching structures would move the needle — and by how much.