Interchange-plus vs flat-rate: which pricing model costs you less

Two businesses with identical sales can pay noticeably different amounts for card processing, simply because they are on different pricing models. The model decides who keeps the difference when interchange is low, and how much your bill moves when your customers' cards change.

Flat-rate pricing

You pay one percentage on every card sale, sometimes plus a few cents per transaction, whatever the card. A basic credit card and a premium rewards card cost you the same.

It is easy to understand and to budget. The catch: the processor sets the flat rate high enough to cover its most expensive cards, so on every cheaper card it keeps the difference. The more volume you process, the more that difference adds up.

Interchange-plus pricing

You pay the actual interchange and network fees for each sale, passed through at cost, plus a fixed markup that stays the same: for example a set percentage and a few cents per transaction. The markup is what you negotiate.

Your bill moves with your card mix, but you never pay more than the real wholesale cost plus the agreed markup. When interchange goes down, as it did for many small businesses in Canada in October 2024, the saving reaches you automatically.

Tiered pricing: the one to avoid

Some processors group cards into tiers such as qualified, mid-qualified and non-qualified, each with its own rate. The processor decides which cards land in which tier, and in practice many sales fall into the expensive tiers. Tiered statements are the hardest to read and usually the most expensive. If your statement shows tiers, ask for an interchange-plus quote.

When each model makes sense

As a general guide:

• Flat-rate: new or very small businesses, irregular sales, or when simplicity matters more than the last fraction of a percent.
• Interchange-plus: steady monthly volume, a high share of debit or basic cards, or growth you expect to continue.
• Tiered: rarely the best choice for anyone.

How to tell what you're on

Look at your statement. If every sale shows the same rate, you are on flat-rate. If you see words like qualified and non-qualified, you are on tiered. If interchange is listed separately from the processor's fees, you are on interchange-plus.

Then calculate your effective rate (total fees divided by total card sales) and compare it with a quote on the other model, using the same months. Our statement guide shows where to find each number.