Flat rate or interchange‑plus? The arithmetic, not the pitch.
Flat-rate processing is simpler and genuinely cheaper for some businesses. Interchange-plus is cheaper for others. Which one you are depends on three things you can work out from your own statement in about five minutes.
What this page settles.
Three questions, in the order most people ask them.
The two models in one paragraph each
Flat rate. One published percentage, sometimes with a per-transaction fee, covering everything — interchange, assessments, the provider’s margin, the software, the support. Square, Stripe, PayPal and Shopify Payments all work this way. You know what every sale costs before it happens.
Interchange-plus. You pay the published interchange on each transaction, the card networks’ assessments, and a stated markup to the processor. Your bill moves with your card mix. You can see exactly what the processor earns.
Neither is a trick. Flat rate is insurance: the provider absorbs the variation and charges a premium for doing so. Interchange-plus removes the premium and hands you the variation.
Why flat rate wins at the bottom
A flat-rate provider has fixed costs to recover on every account — onboarding, support, risk, software. On a business doing a few thousand dollars a month, those costs are large relative to the processing, and the flat-rate provider is effectively subsidising you out of the premium it charges larger accounts.
A merchant account cannot do that. If it carries a monthly fee, a gateway fee and a statement fee, a small account pays those in full and they swamp any rate advantage.
So at low volume, flat rate usually wins outright — unless the merchant account has no fixed monthly costs at all, which is the specific case where the comparison gets interesting again.
Why interchange-plus wins as you grow
The premium in a flat rate is a percentage. It scales with you. The advantage of interchange-plus is also a percentage, and it scales with you too — but there is no ceiling on how much the flat-rate premium costs you, while the markup under interchange-plus stays where it was negotiated.
The practical effect: the gap between the two models widens every month you grow, and it widens fastest for businesses with cheap card mixes — mostly debit, mostly in person, mostly small tickets with a low average interchange.
Working out your own crossover
You need three numbers, and two of them are on your statement.
- Your monthly card volume. Total card sales for a full month.
- Your total fees for that month. Every charge, not the discount rate.
- Your transaction count.
Divide fees by volume and multiply by 100. That is your effective rate today. Our calculator does this and separates the interchange from the markup if you also enter the interchange line.
Then price the alternative honestly:
- Under flat rate: volume × the flat percentage, plus any per-transaction fee × transaction count.
- Under interchange-plus: your actual interchange and assessments (from the statement), plus the quoted markup × volume, plus the quoted per-item × transaction count, plus every fixed monthly charge in the quote.
That last clause is where most comparisons go wrong. A beautiful markup with a monthly fee, a gateway fee, a PCI fee and a statement fee attached can lose to flat rate comfortably at small volume. Add the fixed costs in before you conclude anything.
The things price does not capture
Worth weighing alongside the arithmetic, because they are often what actually decides it:
Funds holds. Aggregators like Square and Stripe onboard you in minutes because they put you under a shared merchant ID and manage risk afterwards — sometimes by freezing a payout while they review it. A merchant account underwrites you up front, which is slower to open and much less likely to interrupt your cash flow later.
Who answers the phone. A flat-rate provider at this scale supports millions of accounts. Decide honestly how much it matters to you to reach a person who knows your business.
Software. If you are genuinely using the point-of-sale, invoicing, payroll or inventory tools bundled into a flat rate, some of that premium is buying something. Price the replacement before you call it a saving.
Hardware lock-in. Some terminals only work with the provider that sold them. Check before you buy, not when you want to switch.
The summary
If you are new, low volume, or you lean heavily on bundled software, flat rate is probably the right answer and you should not feel talked out of it.
If you are processing consistently, taking most payments in person, and your card mix is ordinary, the premium you are paying for simplicity has very likely grown past what the simplicity is worth. Work out the effective rate, price both models with the fixed fees included, and let the number decide.
What we charge
Interchange + 0.50% + 10¢ in person, interchange + 0.75% + 25¢ keyed. No monthly fee, no PCI fee, no contract — which is the part that makes the comparison above work at smaller volumes too. Send us a statement and we will mark up your actual numbers against both models, free, and tell you if you should stay where you are.
While we are on the subject
Is Square actually more expensive?
Sometimes, and sometimes not. Flat-rate pricing bundles everything into one number, so it wins on tiny volumes and loses as volume grows. The crossover depends on your average ticket and card mix, not on anyone’s opinion.
What is the catch with interchange-plus?
Your bill varies month to month, because interchange varies. The total is usually lower, but it is less predictable, and the statement takes more reading.
Do I have to leave Square to get interchange-plus?
You need a merchant account rather than a payment aggregator. That is a different kind of relationship — a real underwriting process, your own merchant ID, and usually better rates and better recourse if funds are held.
Which is better for a brand new business?
Flat rate is often the sensible place to start. It takes minutes to set up, there is no underwriting, and at low volume the difference in cost is small. Revisit it once you are processing consistently.