You’re comparing payment processor quotes. One offers 2.9% + 30¢. Another quotes “interchange plus 0.25% + 10¢.” A third shows 1.79% qualified rate. They sound completely different but they’re all pricing the same underlying costs. The question isn’t which is cheapest on paper - it’s which model fits how your business actually transacts.
The cost stack every model is built on
Every card transaction has three cost components that someone has to pay:
Interchange goes to the bank that issued the card. This is the largest component - typically 1.5-2.4% for credit cards in the US. It varies by card type (debit vs credit vs rewards vs corporate), how the transaction is processed (swiped vs keyed vs online) and your merchant category. Visa and Mastercard publish their interchange tables - hundreds of rate categories that change twice a year.
Scheme fees go to Visa or Mastercard. These are smaller - around 0.13-0.15% plus some fixed per-transaction fees. They cover network operations, brand marketing and fraud prevention programs.
Processor margin is what your payment processor keeps. This is the only component that’s actually negotiable.
The total is typically 2-3% for most merchants. The three pricing models just package these components differently.
Interchange++ shows you everything
IC++ (interchange-plus-plus) passes through interchange and scheme fees at cost and adds a fixed processor markup on top.
A typical quote looks like: “Interchange + scheme + 0.25% + 10¢”
Your March statement might show:
| Transaction type | Count | Interchange | Scheme | Markup | Total |
|---|---|---|---|---|---|
| Visa CPS Retail Credit | 847 | 1.51% + $0.10 | 0.13% | 0.25% + $0.10 | 1.89% + $0.20 |
| Visa Signature Preferred | 203 | 2.10% + $0.10 | 0.14% | 0.25% + $0.10 | 2.49% + $0.20 |
| MC World Elite | 156 | 2.05% + $0.10 | 0.13% | 0.25% + $0.10 | 2.43% + $0.20 |
| Debit (regulated) | 1,204 | 0.05% + $0.22 | 0.13% | 0.25% + $0.10 | 0.43% + $0.32 |
What IC++ optimizes for: Transparency. You see exactly what you’re paying and where it goes. If interchange drops you benefit immediately. If a customer pays with an expensive corporate card you see the cost clearly.
Who it fits: Merchants processing $100k+/month who will actually review statements. Businesses with finance teams who want to reconcile costs. Anyone who values knowing their true cost structure.
The trade-off: Complexity. Your effective rate changes month to month based on card mix. Statements are detailed but dense. You need to understand interchange categories to spot problems.
Blended pricing trades transparency for simplicity
Blended (flat-rate) pricing charges one rate regardless of card type: 2.9% + 30¢ for everything.
Your statement shows:
| Month | Transactions | Volume | Fees | Effective rate |
|---|---|---|---|---|
| March | 2,410 | $287,000 | $8,923 | 3.11% |
That’s it. Simple.
What blended optimizes for: Predictability. You know exactly what every transaction costs before it happens. Accounting is straightforward. No interchange expertise required.
Who it fits: Smaller merchants who value simplicity. Businesses where processing cost isn’t a major expense line. Anyone who doesn’t want to think about payments.
The trade-off: You’re paying an averaged rate. If your transaction mix is heavy on debit cards (which cost processors ~0.8%) you’re subsidizing the rate. If you’re heavy on premium rewards cards (which cost ~2.4%) the processor is subsidizing you. Most merchants end up paying a premium for the simplicity.
The math: A processor offering 2.9% is betting your blended interchange cost is under 2.5%. On a portfolio with 60% debit and 40% credit they’re paying maybe 1.4% in interchange and scheme fees combined - leaving 1.5% margin. That margin funds their support, fraud prevention and profit.
Tiered pricing anchors on a low rate
Tiered pricing quotes a low “qualified” rate with higher rates for transactions that don’t qualify:
- Qualified: 1.79% + 25¢
- Mid-qualified: 2.29% + 25¢
- Non-qualified: 2.99% + 25¢
The qualified rate looks attractive. The question is: what percentage of your transactions will actually qualify?
How qualification works: Each processor sets their own criteria. Common factors:
- Card type: Basic cards qualify, rewards and corporate cards often don’t
- Processing method: Swiped transactions qualify, keyed transactions may not
- Data submitted: Missing address verification can trigger downgrades
- Settlement timing: Batching within 24 hours is sometimes required
What tiered optimizes for: Headline rate. The 1.79% looks great in a comparison. Processors can advertise competitive rates while earning margin on the transactions that downgrade.
Who it fits: Merchants with simple transaction patterns - mostly swiped basic cards, settled same-day. Retail businesses with in-person transactions and few corporate customers.
The trade-off: Unpredictability. Your effective rate depends on your qualification rate which you don’t control. A merchant expecting to pay 1.79% might end up at 2.5% effective if 60% of transactions downgrade. The math is hard to forecast.
What actually matters: effective rate
Quoted rates are starting points. Effective rate is what you actually pay.
Effective rate = Total fees ÷ Total volume
A merchant processing $100,000/month:
- IC++ quote: “Interchange + 0.30% + 10¢” → Effective rate: 2.15%
- Blended quote: “2.75% + 25¢” → Effective rate: 2.85%
- Tiered quote: “1.79% qualified” → Effective rate: 2.45% (after 55% downgrade)
The same underlying interchange cost ($1,450 in this example) gets marked up differently. IC++ has the lowest margin. Blended has the highest. Tiered falls in between.
Comparing quotes: what to ask
When evaluating processors:
For IC++ quotes: What’s your markup over interchange? Is it percentage-only or percentage plus per-transaction? Are scheme fees passed through at cost or marked up?
For blended quotes: What’s the rate for card-present vs card-not-present? Are there different rates for different card types? What’s excluded (international cards, AMEX)?
For tiered quotes: What percentage of my transactions do you estimate will qualify? What specific criteria cause downgrades? Can you show me effective rates for similar merchants?
For all quotes: What are the ancillary fees? Look for: PCI compliance fees, statement fees, batch fees, minimum monthly fees, early termination fees. These can add 0.1-0.3% to your effective rate.
When switching makes sense
Revisit your pricing when:
Volume crosses thresholds: At $50k/month you have negotiating power. At $100k/month IC++ usually beats blended. At $500k/month you should be getting custom rates.
Transaction mix changes: Started as retail (mostly debit) but now selling B2B (corporate cards)? Your blended rate may no longer fit your cost structure.
Effective rate creeps up: Interchange increases twice yearly. If your processor doesn’t pass through decreases but does pass through increases, your margin is widening in their favor.
Contract renewal approaches: Most agreements are 3 years. The 90-day window before renewal is your best opportunity to negotiate. Get competitive quotes.
Choosing your model
Pricing models aren’t tricks - they’re trade-offs. IC++ gives transparency at the cost of complexity. Blended gives simplicity at the cost of optimization. Tiered gives low headline rates at the cost of predictability.
The right choice depends on your volume, your transaction mix and how much attention you want to pay to payments. At low volumes simplicity usually wins. At high volumes transparency pays for itself.
Whatever model you choose, track your effective rate monthly. That single number tells you whether your pricing still makes sense.