Types of Processing Pricing Structures
Flat Rate Pricing
If your payment processor offers a flat rate pricing structure, then they have taken the interchange fee, the card brand fee, and their margin fee to determine one single rate that will be applied to all the transactions that your business processes.
Because this is a flat pricing structure, you pay a single rate, like 2.9%, on all of your transactions, even if the actual interchange rate varies with the different transactions. Depending on your business and the volume you are processing each month, this may mean that your business is paying more than it needs to for payment processing.
Many merchants are lured by the simple nature of flat rate pricing and only having to be aware of a single fee for all transactions, but may eventually realize their business has outgrown this model or could have been saving money with another processor all along. So, while this pricing model may seem simple or easier to understand, it’s important to compare it with other processors’ models to ensure you are, in fact, getting the best deal possible for your business.
Tiered pricing usually consists of having a lower "qualified" rate for certain transactions and higher "mid" and "non qualified" rates for others. This is the most common pricing method in the US. The common drawback is that merchants are enticed with a low "qualified" rate, which usually only applies to very select few types of cards, but nearly all transactions end up in the higher “mid” and “non-qualified” tiers.
While less common in the US, Interchange Differential is more common for Canadian processors.
Similar to tiered pricing, "qualified" and "non-qualified" fees are charged, but merchants are also charged interchange differential fees for credit cards. This results in merchants paying multiple fees on the same transaction, essentially being double billed.
Often considered the most honest and affordable pricing model in the industry, interchange plus pricing creates a very transparent relationship between a merchant and their processor. With this pricing model, the processor margin will be a set percentage across all transactions, while the interchange fee, which fluctuates depending on which type of transaction is being processed, will dictate the final cost of a given transaction. This means that whenever you process a transaction that is eligible for a lower interchange fee, you will save money compared to if the transaction was completed using a straight flat rate for all transactions.