Where the 3% actually goes
Every card fee has three layers: the wholesale cost set by the networks, a small network assessment, and the processor's markup. Only one layer is negotiable, and most pricing models exist to hide it.
The three layers of every card fee
Layer one is interchange: the wholesale price, set by the card networks and issuing banks, identical for every processor in the country. A plain debit card might cost a fraction of a percent; a corporate rewards card costs the most, because the points come from somewhere and that somewhere is you.
Layer two is assessments: small percentages the networks themselves charge for running the rails. Also non-negotiable, also identical for everyone.
Layer three is the processor's markup, and it is the only layer anyone can negotiate. Every pricing model in the industry is a different way of presenting, or hiding, this layer.
The three pricing models, decoded
Flat rate
The convenience modelOne simple number like 2.9% covering everything. Simple, and padded: the cheap transactions subsidize the model, and the padding belongs to the processor. The premium for simplicity grows with your volume.
Tiered
The opaque modelTransactions sort into qualified, mid and non-qualified buckets at the processor's discretion. Where each lands decides what you pay, and the sorting hand isn't yours. The opacity isn't a flaw, it's the design.
Interchange plus
The transparent modelWholesale cost passed through at cost, plus one fixed visible markup. The honest structure: every statement shows exactly which layer is which, and rate creep has nowhere to hide.
Or step outside the absorption game entirely
Everything above assumes you absorb the fee and tries to shrink it. The other family of answers moves the cost: dual pricing posts a cash price and a card price and lets the customer choose, and surcharging adds the disclosed cost to credit transactions only. For many local businesses those programs don't shrink the fee, they effectively retire it.
Fair questions
What is interchange?
The wholesale cost of accepting a card, set by the networks and the bank that issued it. Identical for every processor, non-negotiable for everyone, typically the largest layer.
Why do rewards cards cost more to accept?
Someone funds the points, and it's the merchant: premium rewards cards carry the highest interchange categories.
What's wrong with flat-rate pricing?
Nothing morally; it's just expensive. One rate bundles the cheap debit card and the costly rewards card together, padded to cover the worst case, and the padding is the processor's.
What's a tiered or 'bucket' plan?
Transactions get sorted into qualified, mid-qualified and non-qualified tiers, by the processor, who profits when more land in the expensive bucket. The opacity is the product.
What pricing should I be on?
Either interchange plus, where the markup is visible and negotiated, or a program like dual pricing where the cost mostly leaves your side entirely. The free analysis says which, with your numbers.
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