Where the 3% actually goes
Every card fee has three layers. First is the wholesale cost set by the card networks. Second is a small network assessment. Third is the processor's markup. Only one layer can be negotiated. Most pricing models exist to hide it.
The three layers of every card fee
Layer one is interchange. That is the wholesale price. The card networks and the banks that issue the cards set it. It is the same for every processor in the country. A plain debit card might cost a fraction of a percent. A corporate rewards card costs the most. The points come from somewhere, and that somewhere is you.
Layer two is assessments. These are small percentages the networks charge to run the rails. Nobody can talk them down. They are the same for everyone.
Layer three is the processor's markup. It is the only layer anyone can negotiate. Every pricing model in the industry is just a new way to show this layer. Or to hide it.
The three pricing models, decoded
Flat rate
The convenience modelOne simple number like 2.9% covers everything. It is simple, and it is padded. Your cheap sales pay for the model. The padding belongs to the processor. The more you sell, the more that simple number costs you.
Tiered
The opaque modelYour sales drop into three buckets: qualified, mid and non-qualified. The processor decides which one. Where a sale lands sets what you pay. You do not do the sorting. Being hard to read is not a flaw here. It is the design.
Interchange plus
The transparent modelYou pay the wholesale cost at cost. On top sits one fixed markup you can see. Nothing is hidden. Every statement shows which layer is which. Rate creep has nowhere to hide.
Or take the fee off your books instead
Everything above assumes you eat the fee. It just tries to make the fee smaller. There is another way. It moves the cost instead. Dual pricing posts a cash price and a card price. The customer picks. Surcharging adds the disclosed cost to credit card sales only. For many local businesses those programs do not shrink the fee. They retire it.
Fair questions
What is interchange?
It is the wholesale cost of taking a card. The networks and the bank that issued the card set it. Every processor pays the same amount. Nobody can talk it down. It is usually the biggest layer.
Why do rewards cards cost more to accept?
Someone pays for those points. That someone is the merchant. Premium rewards cards carry the highest interchange categories. A card with big perks costs you the most to take.
What's wrong with flat-rate pricing?
Nothing is wrong with it morally. It is just expensive. One rate covers the cheap debit card and the costly rewards card. The rate gets padded to cover the worst case. That padding goes to the processor.
What's a tiered or 'bucket' plan?
The processor sorts your sales into three tiers: qualified, mid-qualified and non-qualified. The processor earns more when a sale lands in a costly tier. You cannot see how it sorts. That is not a flaw. It is the product.
What pricing should I be on?
One of two. Interchange plus shows the markup, and you negotiate it. Or a program like dual pricing, where most of the cost leaves your side. The free analysis tells you which one, using your numbers.
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