Two processors can quote you very different-looking prices and end up costing about the same, or quote nearly identical rates and end up far apart. The difference is usually the pricing model: the way the processor packages the underlying cost of each transaction and adds its own margin. There are three common models. Once you understand them, quotes become much easier to compare.

The cost underneath every model

Every card transaction carries the same basic costs regardless of who processes it. Interchange is set by the card networks and paid to the bank that issued the card. Assessments, or network fees, go to the card brands themselves. Everything above those two is the processor's markup. Pricing models are simply different ways of bundling these three pieces into what you see on your statement.

Flat-rate pricing

With flat-rate pricing, you pay the same percentage, sometimes plus a fixed per-transaction fee, on every card regardless of type. A basic debit card and a premium rewards card cost you the same to accept.

  • Strengths: very easy to understand and predict, often with few or no monthly fees, and quick to set up.
  • Weaknesses: you pay the same rate on low-cost cards as on expensive ones, so the processor keeps the difference whenever a customer uses a cheaper card.
  • Often a fit for: very small or new businesses, seasonal sellers and businesses with low or unpredictable volume.

As volume grows, flat-rate pricing usually becomes harder to justify. The simplicity has a cost, and that cost scales with every sale.

Tiered pricing

Tiered pricing sorts transactions into buckets, typically called qualified, mid-qualified and non-qualified, each with its own rate. A plain debit card tapped in person might land in the qualified tier, while a rewards card or a keyed-in sale might be pushed into a higher tier.

  • Strengths: the statement looks simple, with only a few rates to read.
  • Weaknesses: the processor decides which transactions fall into which tier, and those rules are rarely spelled out. The quoted rate is usually the qualified rate, which may apply to only a portion of your sales.
  • Often a fit for: honestly, few businesses. It is the model most likely to make an attractive quote look better than the statement that follows.

Interchange-plus pricing

Interchange-plus, sometimes called cost-plus or pass-through pricing, passes interchange and assessments through at their actual cost and adds a clearly stated markup, usually a percentage plus a per-transaction fee. Your statement lists each interchange category separately, with the processor's markup shown on its own.

  • Strengths: transparent and fair. You see exactly what the processor earns, and you automatically benefit when customers use lower-cost cards.
  • Weaknesses: statements are longer and use unfamiliar interchange category names, which can be intimidating at first.
  • Often a fit for: most established businesses, and almost any business processing steady monthly volume.

A variation is subscription or membership pricing, where interchange is passed through and the processor charges a flat monthly fee plus a small per-transaction fee instead of a percentage. The principle is the same: cost is separated from markup.

A simple illustration

Picture two customers on the same afternoon. One taps a basic debit card for a small purchase. The other keys in a premium rewards card over the phone for a larger order. The underlying interchange on the second sale is considerably higher than on the first.

  • On flat-rate pricing, both sales cost you the same percentage. You overpay on the debit sale, and the processor absorbs some of the cost of the rewards sale.
  • On tiered pricing, the debit sale may land in the qualified tier and the rewards sale in a higher tier, but the processor's tier rules decide how much more you pay, and the gap is usually wider than the real cost difference.
  • On interchange-plus pricing, each sale costs its actual interchange plus the same stated markup. You pay less on the debit sale and more on the rewards sale, in proportion to their real costs.

Multiply that afternoon across a month of sales and you can see why the model matters as much as the rate. Businesses with a lot of debit card volume tend to benefit most from moving off flat-rate or tiered pricing.

How to compare quotes across models

Because each model packages costs differently, comparing headline rates side by side does not work. A better approach:

  1. Take one recent month of your own statement, with your real mix of cards and transaction sizes.
  2. Ask each provider to show what you would have paid for that exact month under their pricing, including every monthly and annual fee.
  3. Compare the resulting effective rates, not the quoted percentages.
  4. Ask which parts of the price are fixed by the card networks and which parts are the provider's markup.
  5. Ask how and when the markup can change, and get the answer in writing.

Questions that reveal the real model

  • Is interchange passed through at cost, or bundled into the rate?
  • If tiered, which of my transactions will be non-qualified, and why?
  • Are there monthly, annual, PCI or gateway fees outside the rate?
  • Is there a minimum monthly fee if my volume is low?
  • Is there a contract term or an early termination fee?

A provider confident in its pricing will answer all of these plainly. Hesitation, or a refusal to show you a comparison on your own statement, tells you something.

Where BrightStar fits

BrightStar favors transparent pricing where you can see interchange and our markup separately. We will take your current statement, whatever model it uses, and show you what the same month would have cost with us. We match or beat your current rate, guaranteed in writing. Through the BrightStar Impact Network, part of our markup on your account is donated every month to the organization you designate, so the margin we earn does some good in your community too.

Published · BrightStar Merchant Services