Flat rate vs. interchange-plus
Square quotes one simple percentage. Stripe quotes 2.9% plus 30 cents. The old-school rep on the phone says "interchange plus twenty-five basis points" like that's supposed to mean something. Here's what each model actually is, when each one wins, and when each one quietly costs you money.
Quick background: every card transaction has a base cost called interchange — set by the card networks, paid to the customer's bank, same for everyone. Pricing models are just different answers to one question: how does the processor's markup get layered on top of that base cost?
Flat rate: one price for everything
Flat-rate providers — Square, Stripe, PayPal, and friends — charge you the same rate no matter what card the customer uses. In-person rates from these providers have historically run around 2.6% plus a small per-transaction fee, with online around 2.9% plus 30 cents (check current pricing; these move over time). Underneath, the true cost of each transaction still varies wildly by card type. The provider absorbs that variation: they lose a little on expensive cards and make a healthy margin on cheap ones.
What you get in exchange is real: no monthly fees, no contract, instant signup, clean software, and a bill you can predict. That trade is genuinely worth it for a lot of businesses.
Interchange-plus: pass-through plus a fixed markup
Interchange-plus (also called "cost-plus" or "pass-through") bills you the actual interchange and network fees on every transaction, plus a fixed, disclosed markup — something like 0.25% plus 10 cents per transaction, to use an illustrative number. Cheap cards cost you less, expensive cards cost you more, and the processor's cut stays visible and constant. There are usually monthly fees alongside it — statement, PCI, and so on.
Where the money actually moves: an illustrative example
Take a $100 sale on a debit card from a large bank. Federal rules cap that card's interchange at roughly 0.05% plus about 21 cents — call it a quarter of true cost.
- Flat rate at 2.6% + 10¢: you pay $2.70.
- Interchange-plus at 0.25% + 10¢: you pay roughly $0.61.
Now take the same $100 on a premium corporate rewards card with interchange around $2.50:
- Flat rate: still $2.70.
- Interchange-plus: roughly $2.85.
Illustrative numbers, but the shape is the point: flat rate overcharges you most on debit and basic cards, and can actually undercharge you on premium ones. Which model wins for you depends almost entirely on your card mix and your volume.
When flat rate wins
- Low monthly volume — on a few thousand dollars a month, interchange-plus monthly fees can eat any per-transaction savings
- New or seasonal businesses that want zero commitment and instant setup
- Owners who genuinely value a predictable, no-surprises bill and will happily pay for it
- Businesses that heavily use the provider's bundled POS and tools anyway
When interchange-plus wins
- Meaningful monthly volume, where a fraction of a percent is real dollars
- Debit-heavy businesses — that's where flat rate's margin is widest
- Larger average tickets and B2B work
- Owners willing to read a statement once in a while — visibility is the whole advantage
The honest caveats on both sides
Interchange-plus isn't automatically clean. The markup can creep over time, junk fees can pile on, and I've seen "interchange-plus" statements where the pass-through itself was padded. The model gives you visibility; it doesn't give you a processor with good manners. You still have to look.
Flat-rate providers have their own known weakness: because they sign you up in minutes with no real underwriting, their risk departments act after the fact — which is how businesses end up with frozen funds at the worst possible moment.
There's no universal answer — there's your answer
The crossover point between these models isn't a magic volume number; it depends on your card mix, your average ticket, and the actual fees on offer. The way to settle it is to compute your effective rate — total fees divided by total volume — under both models using a real month of your data. That's a fifteen-minute exercise, and it's exactly what I do in a statement review.