Every payment processor quote boils down to one of three pricing models, interchange-plus, flat-rate, or tiered, and knowing which one you’re looking at is the fastest way to tell whether a quote is actually competitive. This is payment processing fees explained by pricing model, not by brand name, so you can compare any two quotes on the same terms.
Last verified: August 2026.
The three pricing models, in plain terms
Interchange-plus. You pay the card network’s actual interchange cost, which varies transaction by transaction, plus a fixed markup the processor keeps. It’s the most transparent model because the two parts are broken out separately on your statement, but it also means your rate isn’t one single number, it changes based on the card, the transaction type, and even the specific issuing bank.
Flat-rate. You pay one published percentage plus a small fixed fee, the same rate no matter which card network or card type the customer used. Square and Stripe both use this model. It trades some potential savings for total predictability, you always know your rate before you see a statement.
Tiered (bundled). The processor sorts transactions into a handful of buckets, usually labeled something like “qualified,” “mid-qualified,” and “non-qualified,” each with a different rate. It’s the oldest model and the least transparent, because the processor decides which transaction lands in which tier, and the criteria aren’t always disclosed clearly.
What interchange actually is
Interchange is the fee the card network sets and the issuing bank collects, it isn’t something your processor invents or controls. It varies by card type, a rewards credit card carries a higher interchange rate than a plain debit card, because the network prices in the cost of running the rewards program. Regulated debit cards, those issued by larger banks, are capped by federal rule at $0.21 plus 0.05% of the transaction, plus a small fraud-prevention adjustment, which is why debit is consistently the cheapest card type to accept. Credit card interchange isn’t capped the same way and typically runs higher, the exact rate depends on the specific card product and how the transaction was processed.
Whatever pricing model your processor uses, interchange is the floor. Interchange-plus shows it to you directly. Flat-rate and tiered pricing bundle it into a single number so you never see the underlying cost, but it’s still there.
Which model actually saves you money
- Low to moderate volume: flat-rate pricing is usually the simplest and often the cheapest in practice, because there’s no monthly minimum or complicated statement to audit. For a concrete example of what flat-rate pricing looks like at real numbers, see how Square’s rates break down by transaction type.
- Higher, steady volume: interchange-plus tends to win, since the processor’s markup on top of interchange is usually a smaller percentage than what’s baked into a flat rate, and the savings compound at scale.
- Tiered pricing: rarely wins on price for anyone. It exists mainly because it’s easy to market a low “qualified” rate while quietly routing many transactions into the more expensive tiers. If a quote is tiered, ask directly what percentage of transactions typically lands in each tier before assuming the advertised rate applies to you.
Reading a processing statement without getting lost
A statement that mixes interchange, assessments (a separate small fee the card networks charge directly), and the processor’s own markup can look like it has a dozen line items, but it reduces to three questions: what did the card network charge, what did the processor add on top, and does that total match what you were quoted. If a processor can’t explain a line item on your own statement in plain terms, that’s worth treating as a warning sign, not a technicality to ignore.
Common mistakes when comparing processor quotes
Comparing the headline percentage on two quotes without checking the pricing model behind it is the single most common mistake. A tiered processor advertising 1.79% “qualified rate” can end up costing more overall than a flat-rate processor advertising 2.9%, because far fewer of your real transactions qualify for that lowest tier than the quote implies. Always ask what model you’re being quoted under before comparing the number itself.
The other common mistake is assuming a lower headline rate always wins. At low volume, the simplicity of flat-rate pricing, no monthly minimum, no statement to audit, often outweighs a marginally lower interchange-plus rate that only pays off once you’re processing enough to justify the extra complexity.
Frequently asked questions
Which pricing model is most common for small businesses?
Flat-rate, mainly because it’s the default model for the processors most small businesses sign up with directly, and it doesn’t require negotiating or understanding interchange categories to get started.
Can I negotiate my processing rate?
Under interchange-plus or tiered pricing, the markup portion is negotiable, interchange itself is not, it’s set by the card networks. Flat-rate pricing is typically not negotiable below a certain processing volume.
Why did my processor’s rate change without me switching plans?
Interchange rates themselves change periodically, set by the card networks, and any pricing model built on top of interchange will shift when they do. A flat-rate processor absorbs some of that fluctuation instead of passing it through directly, which is part of what you’re paying the flat markup for.
Is a “no fee” or “zero cost” processing offer actually free?
Not for the merchant. These programs pass the processing cost to the customer through a surcharge or a cash discount instead of charging the business directly. The processing cost doesn’t disappear, it moves to a different line, and surcharging rules vary by state.
For the full picture of what a small business actually spends across software, payroll, and payment processing combined, see our complete guide to small business software costs.
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