The difference between interchange plus and tiered pricing is not really about rates — it is about whether you can see what your processor keeps. Here is the same hypothetical month of card processing billed both ways, line by line.
Every card transaction carries the same three cost components no matter who bills you. Interchange is set by the issuing bank and is non-negotiable. Assessments, roughly 0.13% to 0.165% of volume, are set by Visa and Mastercard and are also non-negotiable. The third component, the processor markup, is the only part anyone can actually negotiate. Pricing models differ only in how much of that structure they show you.
Interchange-plus itemises the true interchange rate on every transaction and adds a separately disclosed markup, quoted as basis points plus a per-transaction amount — for example, interchange + 25 bps + $0.10. Interchange and assessments pass through at cost, and the markup line tells you exactly what the processor keeps. If interchange rises in the April or October network updates you see it; if it falls, you get the benefit.
Tiered pricing throws away the itemisation. Transactions are sorted into two to four buckets — typically qualified, mid-qualified and non-qualified — and each bucket carries a single blended rate that already has interchange, assessments and markup baked into it. The processor decides which transactions land in which bucket, and the underlying interchange cost never appears on the statement. If you see the words "non-qual" or "mid-qual" anywhere on your statement, you are on a tiered plan.
Flat-rate pricing charges one blended percentage on everything, often with a fixed per-transaction amount. It is the simplest model to understand and the easiest to budget against. At meaningful volume it is usually the most expensive of the three, because a single rate has to be priced for the worst card the merchant might accept.
An illustrative merchant processing $50,000 across 1,000 transactions, with a card mix typical of a retail or service business.
This is an illustrative worked example. The rates, tiers and card mix below are rounded, hypothetical figures chosen to show how the mechanism works. It is not a quote, not a benchmark, and not a prediction of what any specific merchant would pay. Real interchange tables contain hundreds of categories and real tier assignments vary by processor.
Interchange is what the issuing banks charge, and it is identical under both models. This is the merchant's real, unavoidable cost of accepting these cards.
| Card type | Transactions | Volume | Illustrative interchange | Interchange cost |
|---|---|---|---|---|
| Regulated debit | 500 | $20,000 | 0.05% + $0.22 | $120.00 |
| Standard credit, card present | 200 | $10,000 | 1.65% + $0.10 | $185.00 |
| Consumer rewards credit | 200 | $12,000 | 2.10% + $0.10 | $272.00 |
| Business / corporate | 40 | $3,500 | 2.50% + $0.10 | $91.50 |
| Keyed-in / card-not-present | 60 | $4,500 | 2.40% + $0.10 | $114.00 |
| Total | 1,000 | $50,000 | 1.57% blended | $782.50 |
Interchange passes through at the $782.50 above. Assessments pass through at 0.14% of volume. The markup — here, 25 basis points plus $0.10 per transaction — is disclosed on its own line.
| Line item | Calculation | Amount |
|---|---|---|
| Interchange (pass-through) | from table above | $782.50 |
| Assessments (pass-through) | 0.14% × $50,000 | $70.00 |
| Processor markup — percentage | 0.25% × $50,000 | $125.00 |
| Processor markup — per transaction | 1,000 × $0.10 | $100.00 |
| Monthly account & PCI fees | fixed | $35.00 |
| Total fees | effective rate = $1,112.50 / $50,000 × 100 | $1,112.50 — 2.23% |
Now the same 1,000 transactions are sorted into buckets. Debit and card-present standard credit qualify. Rewards cards drop to mid-qualified. Corporate cards and keyed-in transactions fall all the way to non-qualified. Nothing about the merchant's behaviour changed — only the billing model.
| Tier | What lands here | Transactions | Volume | Tier rate | Charged |
|---|---|---|---|---|---|
| Qualified | Regulated debit, standard credit swiped | 700 | $30,000 | 1.79% + $0.15 | $642.00 |
| Mid-qualified | Consumer rewards credit | 200 | $12,000 | 2.49% + $0.15 | $328.80 |
| Non-qualified | Business / corporate, keyed-in | 100 | $8,000 | 3.29% + $0.15 | $278.20 |
| Monthly account & PCI fees | fixed | — | — | fixed | $35.00 |
| Total | effective rate = $1,284.00 / $50,000 × 100 | 1,000 | $50,000 | — | $1,284.00 — 2.57% |
Same volume, same transactions, same cards. Interchange-plus produces a 2.23% effective rate; tiered produces 2.57%. The gap is $171.50 for the month, about $2,058 a year, or roughly 34 basis points.
The revealing number is what the processor keeps. Under interchange-plus the markup is $225.00 and it is printed on the statement. Under tiered pricing the processor collects $1,249.00 in tier charges against a true cost of $852.50 in interchange and assessments — a margin of $396.50, none of which appears anywhere on the statement. The extra $171.50 the merchant pays is exactly the extra margin the processor earns. Tiered pricing did not create new costs; it just moved money without showing its work.
Note that 2.23% sits at the upper end of the 1.7% to 2.2% range you would expect from competitive interchange-plus. That is a consequence of the card mix — this merchant takes a lot of rewards and corporate cards. A merchant with the same markup but a heavier debit mix would land considerably lower, which is why effective rate is only meaningful when compared against a similar business.
A downgrade is when a transaction fails to meet the conditions for the cheapest interchange category, or on a tiered plan, drops into a worse bucket. Downgrades are the engine of tiered pricing. On interchange-plus a downgrade raises your cost by the genuine difference in interchange, and you can see it happen. On tiered pricing a downgrade moves the whole transaction from a 1.79% bucket to a 3.29% bucket regardless of whether the underlying interchange rose by anything close to 1.5 points.
The common causes:
Some downgrades are fixable — settling batches on time and passing Level 3 data are operational changes with real savings. Others, like a customer choosing a rewards card, are outside your control. Under tiered pricing you cannot distinguish the two, because you never see which transactions downgraded or why.
Moving to interchange-plus removes the tier problem but does not by itself guarantee an honest bill. The interchange figures on your statement are typed by your processor. Nobody at Visa or Mastercard audits that line before it reaches you.
Padded interchange is the practice of quietly inflating the stated interchange cost while keeping the disclosed markup attractively low. A processor quotes interchange + 15 bps, which looks excellent, then adds a few basis points to the interchange line itself, or bills a transaction under a more expensive category than it actually cleared at, or applies a rate from an old table after an April or October update lowered it. The markup line stays honest-looking. The effective rate never improves.
The symptom is a statement where the markup is clearly competitive but the effective rate refuses to drop toward what that markup implies. Detecting it means comparing the interchange categories on the statement against the published network tables for that month, category by category — the kind of tedious cross-reference an automated statement analyzer handles better than a person with a highlighter. If you are an agent auditing a competitor's pricing, this is where the margin usually hides once the obvious junk fees have been ruled out.
Pull your most recent statement and look at how the fee section is structured. You do not need to read every line — the shape gives it away.
Whichever model you find, calculate the effective rate: total fees divided by total card volume, times 100. It is the one number that is directly comparable across all three models, because it ignores how the fees were labelled and measures only what actually left your bank account. Our guide to reading a merchant statement walks through the rest of the page section by section.
It can be, and pretending otherwise is the mistake most articles on this topic make. Tiered pricing is legal, disclosed in the merchant agreement, and genuinely simpler to read than a statement with two hundred interchange lines on it. For a business processing a few thousand dollars a month, the dollar difference may be smaller than the time cost of understanding a more complex bill, and interchange-plus monthly minimums can erase the savings outright at very low volume.
What tiered pricing costs you is not money by definition — it is the ability to know. You cannot audit a tiered statement, you cannot tell whether a rate increase reflects a real interchange change or a re-sorting of tiers, and you cannot compare two tiered offers meaningfully because tier definitions differ between processors. Once your volume is high enough that the markup matters, that opacity is what becomes expensive.
If you want to know where your own statement actually sits, a statement audit separates interchange from markup and shows you the number the pricing model was designed to obscure.
No. Tiered pricing is a legal, widely used and fully disclosed billing model, and the tier rates are printed in the merchant agreement. The problem is not deception but opacity: because the processor decides which transactions land in which tier and never shows the underlying interchange cost, you cannot tell how much margin is being taken. A merchant on tiered pricing may be paying a fair price. They simply have no way to verify it from the statement.
Non-qualified is the most expensive bucket in a tiered pricing plan. Seeing the words qualified, mid-qualified or non-qualified anywhere on your statement is the definitive sign that you are on tiered pricing rather than interchange-plus. Transactions get sorted into the non-qualified bucket when they are keyed in rather than swiped or dipped, when the customer pays with a rewards, business or corporate card, when Level 2 or Level 3 data is missing, or when a batch settles late.
Look at how the fee section is organised. Interchange-plus statements list individual interchange categories by name, such as CPS Retail Debit or EIRF, each with its own rate, and then show the processor markup as a separate disclosed line in basis points plus a per-transaction amount. Tiered statements show only two to four rate buckets with no interchange category names at all. Flat-rate statements show a single blended percentage applied to everything.
Yes, through a practice known as padded interchange. Because the interchange line on your statement is typed by the processor rather than audited by anyone, a processor can quietly inflate the stated interchange cost while keeping the disclosed markup low. Your headline markup looks competitive but your effective rate does not improve. The check is to compare the interchange categories on the statement against the published Visa and Mastercard interchange tables for that month.
Effective rate is total fees divided by total card volume, multiplied by 100. Typical small businesses land between 2.5% and 3.5%, while a competitive interchange-plus arrangement usually produces somewhere around 1.7% to 2.2%. The figure is heavily influenced by card mix, so a business taking mostly regulated debit will sit far lower than one taking mostly corporate cards, and the number is only meaningful when compared against a similar merchant.
Visa and Mastercard publish updated interchange tables twice a year, in April and October. On an interchange-plus account those changes pass straight through to you and your statement moves with them. On a tiered plan the tier rates usually stay the same on paper, but the processor can quietly re-sort which transactions qualify for which tier, so your effective rate can rise even though no rate on your contract has changed.
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