INTERCHANGE PLUS VS TIERED VS FLAT- RATE VS SUBSCRIPTION PRICING

Understanding how credit card processing fees are determined and how different merchant account pricing models work can save your business hundreds of dollars a month in transaction costs. One of the first questions you’ll ask is “Which should I go with, Tiered or Interchange Plus or Flat-Rate or Subscription Pricing?” In this article, I’ll lay out the differences so you can see for yourself.

What is Markup Pricing?

The markup over interchange and assessments is the only area where you can negotiate credit card processing costs. Keep in mind that many factors contribute to the markup, so not everything will be negotiable, or it will only be negotiable to a point.

4 Types of Markup Pricing Models

Sample Quoted Payment Processing Rates

Interchange-Plus

This is the most transparent pricing model with the most understandable terms and fees. Interchange-plus itemizes wholesale fees and markups and clearly lists them on your monthly statement. This may make your statement a bit more difficult to read overall, but it’s worth it since you’ll know the precise difference between your wholesale fees and rate markups. Interchange-plus rate markups typically consist of both a percentage markup and a per-transaction fee markup, both of which are applied to all your transactions.

Flat-Rate

This is like tiered pricing, but without the tiers. Instead, all transactions cost the exact same percentage and transaction fee, regardless of the wholesale cost. All costs are blended together to create one consistent rate and fee. This tends to make the transaction cost very high, especially for debit transactions. But since processors using flat-rate pricing (like Stripe and PayPal) usually do not charge a monthly fee, this pricing model often makes sense for low-volume businesses.

Subscription

This is a newer pricing system, but it’s catching on. It’s similar to interchange-plus in that the wholesale cost of each transaction is charged separately from the markup. The difference is that you do not pay any percentage markup on transactions, but instead pay just a small per-transaction fee. Then, an additional markup is charged as a flat monthly subscription fee. For merchants with large transactions especially, this kind of pricing can save a lot of money without decreasing transparency.

Tiered

Tiered pricing plans categorize credit card transactions into three categories: qualified, mid-qualified and non-qualified. Generally, qualified rates are the lowest. The transaction rates increase for mid-qualified and are highest for non-qualified transactions. Qualified transactions must meet all the processor’s criteria for processing, such as a swipe/dip in-person with a batch settlement the same day. Failure to meet one or more standards may result in a ‘downgrade’ to mid-qualified or non-qualified tiers.

Some dubious processors take advantage of this opaquer pricing plan to charge merchants excessive markups. You may end up paying a lot more than you want to with little way of determining exactly what you are paying for. This is because processors often fail to disclose which tiers the merchant’s transactions are falling into, making it nearly impossible to determine the true markup rates over interchange.

If you aren’t lucky enough to be on interchange-plus or subscription pricing, chances are you’re tied up in a tiered or ‘bundled’ pricing model. Even with the increased popularity of the above “cost-plus” models, most business owners are on a tiered plan. Tiered statements may appear simpler at first, but this model makes it difficult to thoroughly understand your rates and fees.