Why Interchange Plus Pricing Is Better Than Flat Rate for Small Business Credit Card Processing
As a small business owner, every dollar counts. And when it comes to accepting credit card payments, how you’re charged can have a significant impact on your bottom line. Many small businesses are sold on the simplicity of flat-rate pricing, but what they’re not told is that it often means overpaying on every transaction.
In this blog, we’ll explain the differences between flat rate pricing and interchange plus pricing (sometimes called cost-plus pricing) and why the latter is almost always a smarter choice for your small business.
Understanding Flat Rate Pricing
Flat rate pricing is marketed as simple and predictable. You’re charged a fixed percentage for every transaction—usually something like 2.9% + 30¢.
This pricing model is popular with processors like Square, PayPal and Stripe because it's easy to understand. But easy doesn’t mean cost-effective. Flat rate pricing wraps all fees—interchange, assessment and markup—into one number, which often leads to higher overall costs.
What Is Interchange Plus Pricing?
Interchange plus pricing separates the actual cost of running a card (set by Visa, Mastercard etc.) from the processor's markup.
- Interchange Fees: These go to the card-issuing banks (e.g., Chase, Bank of America).
- Assessment Fees: These go to the card networks (e.g., Visa, Mastercard).
- Processor Markup: This is the fee your payment processor charges you on top of the actual card costs.
Instead of a bundled fee, you pay the true cost of the transaction (interchange + assessment) plus a small, fixed markup, such as 0.25% + 10¢.
Key Benefits of Interchange Plus Pricing for Small Businesses
1. Lower Processing Costs
Flat rate providers pad their pricing to ensure they make money on every transaction, even those with low interchange fees (like debit cards). With interchange plus, your cost reflects the true card type used.
Example:
- Flat rate: 2.9% + 30¢ on a $100 transaction = $3.20
- Interchange Plus: (1.65% + 10¢) + (0.25% + 10¢) = $2.10
- Savings: $1.10 per transaction
2. Complete Transparency
With interchange plus, you know exactly what you’re paying and where your money is going. Each part of the transaction is itemized, so there’s no mystery markup. Transparency builds trust and gives you better control over your business expenses.
3. Scales Better as You Grow
Flat-rate pricing becomes less competitive as your volume increases. With interchange plus, your processor’s margin stays fixed while your volume grows, helping you keep more of your revenue.
4. Rewards Low-Cost Transactions
Not all transactions are created equal. Debit cards and certain business cards have lower interchange fees. With flat rate, you’re charged the same high rate no matter what. With interchange plus, you benefit when customers use lower-cost cards.
5. Negotiable Markups
Unlike flat rate, where you’re locked into set pricing, interchange plus allows room for negotiation—especially as your business grows. You can often secure lower markups or tiered pricing that reflects your volume.
When Flat Rate Might Make Sense
While interchange plus is usually more cost-effective, flat rate might be suitable for very low-volume businesses or startups that prioritize simplicity over savings. If you're only running a few transactions per month, the difference in cost might be negligible.
Conclusion: Interchange Plus = Smart Business
If you're serious about running a lean and profitable business, don't leave money on the table. Interchange plus pricing offers lower fees, full transparency and better long-term scalability than flat-rate pricing.
Flat rate might seem easier, but ease often comes at a price. Make the switch to interchange plus, and put those savings back into growing your business.
Need Help with Merchant Services?
We specialize in helping small businesses find the right credit card processing solution—with honest, transparent and interchange-plus pricing. Contact us today for a free cost analysis and see how much you could save.
