Two payment processors can give you quotes that look surprisingly similar on paper. But once you start processing real transactions, the amount you actually pay each month can be very different.
That’s because comparing interchange-plus vs. flat-rate pricing involves more than looking at the percentage listed in a quote.
With flat-rate pricing, multiple payment processing costs are combined into one rate.
Interchange-plus pricing separates those costs. The interchange portion is the fee associated with processing a card transaction through the payment network to the card-issuing bank. The processor then adds its own fee. This structure makes it easier to see what you’re paying in underlying transaction costs and what you’re paying the processor for its services.
Understanding what sits behind each quote makes it easier to compare your options accurately. Here’s how both pricing models work, what a flat rate actually includes and what to examine before choosing a payment processor.
Key Takeaways
- Flat-rate and interchange-plus pricing calculate costs differently. Flat-rate pricing combines processing costs into one blended rate, while interchange-plus pricing separates the actual interchange cost from the processor’s disclosed markup.
- Interchange itself doesn’t change from processor to processor. Processors pay the same underlying interchange and assessment costs. What differs is the processor markup and how that markup is presented.
- Flat-rate pricing prioritizes simplicity. The processor’s margin is built into the blended rate, so you don’t see exactly how much of each transaction goes toward interchange versus markup.
- Interchange-plus provides greater visibility. Because the processor’s markup is disclosed separately, you can more clearly see and verify what you’re paying to process transactions.
Want to see how the pricing models compare using your business’s actual numbers? Request a Rate Comparison
What Determines the Cost of Every Transaction
When a customer pays with a card, the cost of processing that transaction is made up of several components. Understanding those costs is the first step toward making sense of the rates you see in processor quotes. If you’re not familiar with how funds move from a card transaction to your business, understanding what a merchant account is can help put these processing costs in context.
Interchange is the fee associated with moving a card transaction through the payment system to the card-issuing bank. Interchange rates are established within the card networks’ published rate structures and can vary depending on factors such as the type of card used and how the transaction is processed.
Assessments are additional fees charged by the card networks. Like interchange, these costs are part of processing card payments and are not a processor-specific markup.
The third component is the processor markup. This is what the payment processor charges for its role in facilitating the transaction, and it is the portion of the cost that can differ from one processor to another. It’s also helpful to understand the difference between a merchant account and a business bank account, since they serve different roles in processing and managing the money your business receives.
That distinction matters when you compare quotes. A processor cannot simply offer you access to a lower interchange rate than another processor. What can differ is the processor’s markup and how clearly that markup is disclosed.
This is where the difference between flat-rate and interchange-plus pricing becomes important. Both pricing models account for the underlying costs of accepting cards, but they present those costs to the business in very different ways.
How Flat-Rate Pricing Works
Flat-rate pricing is designed to make payment processing straightforward. Instead of seeing the individual costs that make up each transaction, the business pays a predetermined rate that combines those costs into one number.
One Blended Rate for Every Transaction
With flat-rate pricing, businesses generally pay the same stated processing rate even though the underlying cost of individual card transactions can vary. A debit card transaction, for example, may carry a different interchange cost than a premium rewards credit card, but the merchant still sees the same flat rate applied.
That simplicity can be appealing, particularly for new or low-volume businesses. It makes processing costs easier to understand at a glance and can make monthly expenses more predictable without requiring the business owner to analyze individual interchange categories.
The trade-off is visibility. Because interchange, assessments and processor markup are bundled together, the rate itself does not show how much of the processing cost comes from each component.
Where the Hidden Margin Comes From
The underlying interchange cost of accepting a card is not the same for every transaction. Card type and other transaction characteristics can affect how much it costs to process a particular payment.
A flat rate does not change along with those underlying costs. When a transaction has a relatively low interchange cost, the difference between that cost and the flat rate may leave more room for processor margin. When the underlying cost is higher, that margin may be smaller. The flat rate is structured to account for those variations across the processor’s transaction mix.
This does not mean flat-rate pricing is necessarily the wrong choice. Its simplicity can have real value. But it does mean a business cannot look at the advertised flat rate and determine exactly how much of that amount represents underlying card costs and how much represents processor markup.
For businesses comparing processor quotes, that distinction is important. A simple percentage may be easy to understand, but it does not necessarily provide all the information needed to determine what payment processing will actually cost.
How Interchange-Plus Pricing Works
Interchange-plus pricing takes a different approach. Instead of combining the underlying processing costs and processor markup into one rate, it separates them. That gives businesses a clearer picture of where their payment processing costs are going.
Two Line Items Instead of One
With interchange-plus pricing, the actual interchange cost of a transaction is passed through to the business. The processor then adds its own separately disclosed markup, which may include a percentage and a per-transaction fee.
For example, a quote might be structured as “interchange + 0.30% + $0.10.” The interchange portion can vary based on the transaction, while the processor’s agreed-upon markup remains clearly identified.
That separation is the fundamental difference between interchange-plus vs. flat-rate pricing. Rather than paying one blended rate regardless of the underlying transaction cost, the business can distinguish the cost of interchange from the amount charged by the processor.
Why Transparency Changes the Math
Separating interchange from processor markup makes it easier to understand what you are actually paying for payment processing.
If the underlying interchange cost changes because a customer uses a different type of card, you can see that variation. More importantly, you can identify the processor’s markup separately and compare it with the terms you were originally quoted.
That visibility can become particularly valuable as your transaction volume grows. A small difference in processor markup may not look significant when viewed as a percentage, but applying that markup across your actual monthly or annual processing volume shows its real impact on your business.
It also gives you a more meaningful way to evaluate pricing claims. CardConnect Commerce offers a lower-rate guarantee or $250. With interchange-plus pricing, the separation between underlying costs and processor markup provides the transparency needed to make a more direct comparison.
Want to find out what the two pricing models would look like using your actual transaction volume and card mix? Request a Rate Comparison
How to Compare Two Quotes Accurately
Once you understand interchange-plus vs. flat-rate pricing, you can evaluate processor quotes more effectively. The key is to look beyond the headline percentage and determine what you would actually pay based on your business’s transactions.
Ask What Pricing Model You’re Being Quoted
Before comparing rates, confirm whether each processor is quoting flat-rate or interchange-plus pricing. A percentage from one model cannot necessarily be compared directly with a percentage from the other.
With flat-rate pricing, the quoted percentage includes multiple processing costs in one blended rate. With interchange-plus pricing, the quoted markup is added to the actual interchange cost. If you compare only those two percentages, you are comparing numbers that represent different things.
Ask each processor to explain exactly what is included in its quoted rate. That gives you a better starting point for an accurate comparison.
Request Your Actual Card Mix Data
Your processing costs depend in part on the types of cards your customers use. A business that processes a large number of debit transactions can have a different cost profile than one whose customers frequently use premium rewards credit cards.
That is why a generic estimate of how much you could save does not tell the whole story. Look at your existing processing statements and transaction data to understand your actual mix of debit, credit and other card types.
Using your own transaction history gives you a much more relevant basis for comparing pricing models than relying on an industry average or hypothetical example.
Look for What’s Disclosed vs. What’s Bundled
Next, determine how much of the processing cost you can actually see.
Can you identify interchange, card-network assessments and processor markup separately? Or are those costs bundled together into a single rate?
This distinction affects your ability to evaluate a quote over time. With clearly disclosed pricing, you can see which costs come from the card networks and which come from your processor. You can then compare the processor markup against what you were originally quoted.
A bundled rate may be easier to read, but it gives you less information about what is driving your total processing costs.
Model the Real Cost at Your Volume
Finally, turn percentages into dollars.
This type of analysis is also an important part of payment optimization, which involves evaluating transaction costs, processing performance and other parts of your payment setup to identify opportunities for improvement.
Take your actual monthly processing volume, number of transactions and card mix and model what those transactions would cost under each quote. This step is especially important for businesses with significant processing volume because even seemingly small differences can become more noticeable when applied across thousands of transactions.
Don’t assume interchange-plus will always cost less or that flat-rate pricing will always cost more. The result depends on your business’s transaction volume, card mix and the specific processor markup being offered.
The goal is to determine what each pricing structure would actually cost your business. Once you compare the numbers using real transaction data, you can make a decision based on total processing costs rather than the most attractive percentage on the quote.
Pricing also shouldn’t be the only factor in your decision. Depending on how your business accepts payments, you may also want to compare payment APIs and processors based on security, integrations, hardware compatibility, support and other capabilities.
Conclusion
When you compare payment processing quotes, the lowest-looking percentage does not necessarily tell you which option will cost less. You first need to understand what that number represents.
Flat-rate pricing combines multiple costs into one straightforward rate, which can make processing expenses easier to understand. Interchange-plus pricing separates the underlying interchange costs from the processor’s markup, giving you greater visibility into what you are paying and why.
That transparency makes it possible to evaluate a processor’s markup against the rate you were quoted and see how the pricing works with your actual transaction volume and card mix.
If you want to see exactly what your current transactions could cost under interchange-plus pricing, the CardConnect Commerce team can walk through your numbers with you. Instead of comparing percentages in isolation, you can compare the actual costs behind them. Request a Rate Comparison
Frequently Asked Questions
What is interchange-plus pricing?
Interchange-plus pricing separates the actual interchange cost of a card transaction from the payment processor’s markup. Instead of paying one blended processing rate, you see the underlying interchange cost plus a separately disclosed processor fee, making it easier to understand what you are paying for each transaction.
How do I know if I’m being charged flat-rate or interchange-plus?
Review your processing statement or ask your processor how your rate is structured. With flat-rate pricing, processing costs are generally bundled into a single rate. With interchange-plus pricing, you should be able to see the underlying interchange costs and the processor’s markup separately rather than having them combined into one percentage.
Does interchange-plus pricing always cost less than flat-rate?
No. Your actual processing costs depend on factors including transaction volume, card mix and the processor’s markup. Interchange-plus provides greater visibility into those costs, but that does not guarantee it will be less expensive for every business. Comparing both models using your actual transaction data provides a more meaningful answer.
Is flat-rate pricing a scam?
No. Flat-rate pricing is a legitimate payment processing model, and its simplicity can make it appealing to some businesses. The trade-off is that interchange costs and processor markup are bundled together. That makes it more difficult to determine how much of your rate represents underlying costs versus the processor’s margin.
My current processor won’t tell me their markup. What does that mean?
It may mean your processor uses a pricing structure in which its markup is bundled with other processing costs rather than separately disclosed. Ask for a detailed explanation of your pricing and fees. If you still cannot determine what you are paying in processor markup, consider comparing your current costs with a more transparent pricing structure.
See How Your Current Processing Costs Compare
You don’t have to guess whether you’re getting a competitive payment processing rate. CardConnect Commerce can review your current processing costs and show you how they compare with transparent interchange-plus pricing. With customized rates, a dedicated account manager and a lower-rate guarantee or $250, CardConnect Commerce gives you a clearer way to evaluate what you’re paying and where your money is going. Ready to put your current numbers to the test? Request a Rate Comparison
