Example: Visa rewards card, card-present transaction, standard interchange rate. Your processor markup is the only negotiable part.
1. Interchange — The wholesale cost set by Visa/Mastercard/Amex. Goes to the card-issuing bank. Non-negotiable. Ranges from ~0.05% (debit, regulated) to 2.4%+ (premium rewards cards). This is the floor every processor pays.
2. Assessment fee — A small network fee charged by Visa/Mastercard/Discover directly. Typically 0.13–0.15% per transaction. Also non-negotiable.
3. Processor markup — What your payment processor adds on top of interchange + assessment. This is the only part that’s negotiable. It can be structured as flat-rate, tiered, or interchange-plus.
| Pricing Model | How It Works | Who It Favors | Transparency |
|---|---|---|---|
| Flat-rate (Square, Stripe) | Same % regardless of card type — e.g. 2.6% + 10¢ | Processor | Low — can’t see wholesale cost |
| Interchange-plus (I+) | Actual interchange cost + fixed processor markup — e.g. IC + 0.30% + 15¢ | Merchant | High — full visibility |
| Tiered (Legacy ISOs) | Qualified/Mid/Non-qualified buckets. Downgrade fees apply. | Processor | Very Low — hard to audit |
| Subscription (Stax, Helcim) | Monthly fee + interchange passthrough. No per-transaction markup %. | Merchant (high vol) | High — pure wholesale + flat fee |
| Surcharge | Pass fee to customer. Must disclose at point of entry + sale. | Merchant | N/A |
Same volume, very different outcomes depending on pricing model:
| Pricing Model | Effective Rate | Monthly Fees | Annual Cost |
|---|---|---|---|
| Flat-rate (Square 2.6% + 10¢) | ~2.7% | ~$540 | ~$6,480 |
| Interchange-plus (IC + 0.30% + 15¢) | ~2.1% | ~$420 | ~$5,040 |
| Tiered (qualified 1.79%, lots of downgrades) | ~2.5%+ | ~$500+ | ~$6,000+ |
| Subscription (Stax: $99/mo + interchange) | ~1.85% | ~$370 + $99 = $469 | ~$5,628 |
Assumes $20k/month, mostly Visa/MC consumer credit cards, card-present. Actual interchange varies by card type and transaction size. The flat-rate to interchange-plus switch alone saves most $10k–$20k/month businesses $1,000–$1,800/year.
He’ll explain every line in plain English and tell you if there’s a cheaper structure for your volume. No sales pitch. Just the math.
Text PJ — 858-461-8054Interchange is the wholesale fee paid to the card-issuing bank every time a card is used. It’s set by Visa, Mastercard, Amex, and Discover — not your processor. It ranges from about 0.05% + 22¢ for regulated debit cards to 2.4%+ for premium rewards cards. It’s non-negotiable, but your processor choice determines how much markup sits on top of it.
For most U.S. small businesses, the all-in effective rate runs 2.1%–2.9% per transaction. At flat-rate pricing (Square, Stripe), you pay roughly 2.6%–2.9%. On interchange-plus pricing, effective rates typically land between 1.8%–2.4% depending on card mix. Businesses over $50k/month on subscription pricing can get below 1.8%. Your actual number = total monthly fees ÷ total monthly volume × 100.
Flat-rate (Square, Stripe) charges you one blended rate regardless of which card type is used. Simple, predictable, but you’re subsidizing the processor when cheap debit cards run through. Interchange-plus passes your actual wholesale cost through and adds a fixed markup. You pay more when rewards cards are used, less when debit cards are used. For businesses over $10k/month with a mix of card types, interchange-plus almost always wins.
The processor markup is negotiable. The interchange and assessment fees are not. If you process $10k+/month, you have real leverage to negotiate the markup lower, get monthly fees waived, or switch to interchange-plus pricing. Get quotes from 2–3 processors, calculate the effective rate on each, and use them against each other. Most processors will match a competing quote to keep your business.
Tiered pricing buckets transactions into “qualified,” “mid-qualified,” and “non-qualified” categories. The processor decides which bucket each transaction falls into — usually in their favor. Rewards cards, manually keyed transactions, and certain business cards often “downgrade” to non-qualified rates of 3%+. It’s the least transparent pricing model and almost always favors the processor. Avoid it if you can.
Premium cards (Visa Signature, Amex Platinum, etc.) have higher interchange rates because the card network funds the rewards program from that interchange. A regular Visa debit card might cost 0.05% + 22¢ in interchange. A Visa Infinite rewards card costs 2.10% + 10¢. On flat-rate pricing, you pay 2.6% for both. On interchange-plus, you see the actual difference.
In California, surcharging is legal under certain conditions: you must disclose it at the point of entry and point of sale, the surcharge can’t exceed your actual cost, and debit card surcharges are federally prohibited. Many San Diego businesses add a “cash discount” program instead — list a slightly higher price and give a discount for cash, which achieves the same economic result without the surcharge disclosure rules.
The payments industry has more competition than it did five years ago, which means your options are genuinely better. But most processors count on you not shopping around. The best rate you'll ever get is the one you negotiate.
['Never calculating your actual effective rate (total fees ÷ total volume).', 'Accepting the first rate offered without negotiating.', 'Using flat-rate pricing above $10k/month in volume.']
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