Understanding Pricing Models & Fee Structures: Flat-Rate, Interchange-Plus, and Tiered Explained (with examples)

Overview
Processing fees materially impact margins. The main pricing structures are flat-rate (blended), interchange-plus, and tiered (bundled). Understanding how they work will help you choose the lowest-cost option for your business.

The three models, explained

Flat-Rate (Blended): A single percentage + per-transaction fee for all transactions (for example, 2.9% + $0.30). Simple and predictable for low-volume merchants. Merchant Maverick
Interchange-Plus (Pass-Through): Merchant pays the actual interchange (set by card networks) + a disclosed processor markup. Most transparent and typically cheapest at higher volumes. Merchant Maverick
Tiered (Bundled): Transactions are bucketed into “qualified,” “mid-qualified,” and “non-qualified” with different blended rates. Processors often keep some spread; this model can hide costs and is less transparent. Stax Payments

Side-by-side comparison table

Feature	Flat-Rate	Interchange-Plus	Tiered
Transparency	High (simple)	Very high (line-item)	Low (processor decides tiers)
Best for	Low/seasonal volume	High/consistent volume	Often small businesses unaware of alternatives
Typical cost behavior	Can be expensive at scale	Cheapest at scale	Variable; often higher than interchange-plus
Complexity	Low	Higher (needs statement parsing)	Low

Worked example — why interchange-plus can beat flat-rate at scale

Assume 1,000 transactions at an average sale of $20:
Step 1 — total sales: 1,000 × $20 = $20,000.
Flat-rate example: 2.9% + $0.30

Percentage fee: 0.029 × $20,000 = $580.00.
Per-transaction fee: $0.30 × 1,000 = $300.00.
Total flat fees = $580.00 + $300.00 = $880.00.
Effective flat rate = $880 / $20,000 = 0.044 = 4.4%.

Interchange-plus example (sample numbers): assume average interchange of 1.70% + $0.10, processor markup 0.25% + $0.05.

Interchange percent: 0.017 × $20,000 = $340.00.
Interchange fixed: $0.10 × 1,000 = $100.00.
Processor percent markup: 0.0025 × $20,000 = $50.00.
Processor fixed markup: $0.05 × 1,000 = $50.00.
Total interchange-plus fees = $340 + $100 + $50 + $50 = $540.00.
Effective interchange-plus rate = $540 / $20,000 = 0.027 = 2.7%.

This example shows interchange-plus can produce significantly lower costs for higher volumes, which is consistent with industry analysis. Exact savings depend on card mix, MCC, and transaction types. Merchant Maverick+1

Common hidden fees to watch for

Monthly gateway fees, PCI compliance service fees, statement fees, chargeback fees, early termination charges, and equipment rental. Transparency varies by provider—pass-through pricing shows line items, while flat/tiered often bury extras. Industry guides consistently recommend asking for a sample statement to audit fees. Fidelity Bank+1

How to choose for your business

Estimate monthly volume and average ticket.
Ask providers for an itemized statement with interchange line items.
Request a sample comparison using your real volumes and card mix (many independent marketplaces help with this).
If you’re small/seasonal, flat-rate’s simplicity may be best. If you’re growing, interchange-plus usually wins long-term. NerdWallet+1

Where Bay State helps

We audit sample statements and run a side-by-side cost model using your real transaction data to recommend the right pricing structure. For an in-depth guide on selecting the best processor for small business, see: The Best Credit Card Processing Company for Small Businesses.