As a business owner, one of the most important decisions you’ll make is how to handle credit card payment processing. When it comes to pricing models, two major options stand out: Interchange Plus Pricing and Flat Rate Pricing. Each of these models offers different advantages and disadvantages, and the right choice for your business depends on your transaction volume, card usage, and long-term financial goals.

In the last blog post, we introduced interchange fees and explained what they are, who pays them, and how they are determined. We also discussed how interchange rates vary based on several factors, including the type of card used, the transaction’s size, and the merchant’s category.

In this second part of our series, we will explore the pros and cons of Interchange Plus Pricing and why it is often a better option than many businesses’ flat rate pricing model. We’ll break down how each pricing model works, its benefits, and why Interchange Plus Pricing is a smart choice for saving money and increasing profitability in your business.

What Is Interchange Plus Pricing?

How Does Interchange Plus Pricing Work?

Interchange Plus Pricing is a credit card processing pricing model in which the processor adds a fixed markup to the interchange fee charged by the card network for each transaction. The processor adds this fixed fee to the base fee charged by the card network (e.g., Visa, Mastercard).

In Interchange Plus Pricing, the transaction cost is transparent and predictable. This clarity makes it easier for merchants to compare rates across different payment processors and negotiate better terms for their business.

Here’s a simple breakdown of how it works:

  1. Interchange Fee: This fee is charged by the card networks (like Visa or MasterCard) and remains constant for all merchants.

  2. Markup: The processor adds a fixed markup to the interchange fee. This is the fee you pay for the processing service.

  3. Total Cost: The total amount you pay for a transaction is the sum of the interchange fee and the markup.

This transparent pricing model means that you always know what you’re paying for each transaction, making budgeting easier.
For a deeper understanding of interchange fees, check out our detailed post on Interchange Fees Explained.

Pros and Cons of Interchange Plus Pricing

Pros of Interchange Plus Pricing

1. Transparent Costs

One key benefit of Interchange Plus Pricing is the transparency it provides. You can see how much of your transaction fee is going to the credit card network (interchange) and how much is being charged by your processor as markup. This transparency makes it much easier for merchants to understand and control their payment processing costs.

2. Lower Overall Costs

Because the markup in Interchange Plus Pricing is fixed and generally lower than the flat rate charged by other pricing models, many businesses will end up paying less for their credit card processing. The ability to see the interchange fee and markup separately ensures that companies are not overpaying, especially when transactions involve different types of cards or are processed differently.

3. Customizable Pricing Based on Your Needs

With Interchange Plus Pricing, the markup can be tailored to meet the specific needs of your business. Factors like transaction volume, industry type, and the cards used can all influence the markup rate. This flexibility allows you to save money by adjusting your payment structure according to your transaction behavior.

4. Flexible Negotiation

Since the breakdown of fees is clear and straightforward, businesses can easily shop for the best rates. You have the flexibility to negotiate with different processors, ensuring you’re always getting the most competitive deal.

Cons of Interchange Plus Pricing

1. Complexity of Finding Processors

One challenge of Interchange Plus Pricing is that not all processors offer this pricing model. Some larger processors prefer to stick with flat-rate pricing because it is easier to manage, so businesses might need to work with specialized payment processors like Cathedral Payments to access this model.

2. Less Predictable for Smaller Businesses

While Interchange Plus Pricing offers transparency, some businesses, especially smaller ones, may find it more difficult to predict costs on a month-to-month basis. Unlike flat-rate pricing, which provides a fixed percentage, Interchange Plus pricing can vary depending on card types, transaction volumes, and industry factors.

What Is Flat Rate Pricing?

How Flat Rate Pricing Works

Flat-rate pricing is a credit card processing model in which the merchant pays a fixed percentage of each transaction, regardless of the type of card used, the size of the transaction, or the merchant’s industry. In this model, the processor charges the same rate for all transactions, making it easier for businesses to predict costs and budget accordingly.

For example, if your payment processor charges 2.9% + $0.30 per transaction, this flat rate would apply to all card types, including credit cards, debit cards, and premium cards (such as rewards or business cards).

Pros and Cons of Flat Rate Pricing

Pros of Flat Rate Pricing

1. Predictability and Simplicity

The primary advantage of flat-rate pricing is its simplicity. Merchants pay the same rate for all transactions, which makes budgeting straightforward. Since there’s no complexity in understanding how fees are structured, businesses can quickly calculate processing costs.

2. Easy Setup

Flat-rate pricing models are often easier to set up and implement, which can significantly benefit smaller businesses or those just starting with credit card processing.

Cons of Flat Rate Pricing

1. Overpaying for Fees

The most significant disadvantage of flat-rate pricing is that it tends to be more expensive than Interchange Plus Pricing in many cases. Flat-rate pricing doesn’t account for the nuances of different card types or transaction sizes, and businesses may pay more than they need to.

For instance, flat-rate processors charge the same rate for credit and debit card transactions. However, debit card transactions typically cost much less to process. With flat-rate pricing, you are likely overpaying for debit card transactions.

2. Hidden Fees and Lack of Transparency

In the flat-rate model, processors may mislabel certain transactions as high-risk or charge additional hidden fees. This lack of transparency makes it difficult for merchants to fully understand their costs and evaluate whether they are getting a good deal. Unlike Interchange Plus Pricing, where the breakdown of fees is clear, flat-rate pricing hides key details about transaction costs.

3. Limited Flexibility

Flat-rate pricing is a one-size-fits-all model, meaning it doesn’t allow businesses to adjust their fees based on their specific needs, transaction volume, or card types. The fixed percentage rate doesn’t consider the actual cost of processing different types of cards.

Why Interchange Plus Pricing Is Better Than Flat Rate Pricing

Now that we’ve compared Interchange Plus Pricing and Flat Rate Pricing, it’s clear that Interchange Plus is a better option for many businesses. Here’s why:

1. Lower Overall Costs
With Interchange Plus Pricing, businesses only pay the actual interchange fees and a fixed markup, which tends to be lower than the markup in flat-rate pricing. This typically results in lower costs for businesses, especially those with high transaction volumes or who process various card types.

2. Transparency and Control
Interchange Plus Pricing offers transparency, as businesses can see how much they pay for each transaction. This allows businesses to make informed decisions, shop for the best rates, and adjust their payment processing strategy as needed. In contrast, flat-rate pricing is opaque and hides essential details, leading to overpayment.

3. Customization
Since the markup in Interchange Plus Pricing can be negotiated, businesses can tailor their processing costs based on their unique needs and transaction volumes. Flat-rate pricing, on the other hand, offers no such flexibility.

4. Better for Debit Card Transactions
Interchange Plus Pricing provides better rates for debit card transactions, which typically cost much less. Flat-rate pricing charges the same rate for debit and credit cards, leading to overpayment for debit card transactions.

Cathedral Payments: Helping You Transition to Interchange Plus Pricing

At Cathedral Payments, we specialize in providing businesses with the best credit card processing solutions. If you’re ready to switch to Interchange Plus Pricing, we can help you seamlessly transition. Our team is dedicated to providing businesses with transparent, cost-effective payment solutions that help them thrive.

Conclusion: The Smart Choice for Your Business

Interchange Plus Pricing offers advantages over flat-rate pricing regarding credit card processing. It’s transparent, cost-effective, and customizable to fit your business’s specific needs. At Cathedral Payments, we provide businesses with the tools and support needed to navigate the complexities of payment processing and save on transaction costs.

If you’re looking for a more affordable, transparent, and flexible credit card processing model, reach out to Cathedral Payments today. We’ll guide you through switching to Interchange Plus Pricing and help you save money on your processing fees.