Understanding Payment Processing Pricing Models

Why pricing models matter

Payment processing fees can feel confusing, especially when each provider markets a different pricing structure. Whether you’re on Square, Clover, Toast, a bank merchant account, or something else entirely, knowing how you’re charged is the first step to controlling costs.

Here’s a plain-language rundown of the most common models we see in 2025.

Flat-rate pricing (Square, Stripe, PayPal)

You pay the same rate regardless of the card type. A typical example is 2.6% + 10¢ per transaction.

Pros: easy to understand, predictable deposits, no qualification tiers, friendly for new or small businesses.

Cons: more expensive at higher volume, doesn’t reflect actual interchange, limited room to negotiate, POS companies may bundle extra software fees.

Best for: merchants under ~$10k/month or anyone prioritising simplicity over cost optimisation.

Interchange-plus pricing

Your statement shows the actual interchange (set by Visa/Mastercard) plus a processor markup. Example: interchange + 0.25% + 10¢. If interchange is 1.65% + 10¢, your total would be 1.65% + 10¢ + 0.25% + 10¢.

Pros: transparent, typically cheaper for established businesses, separates markup from interchange, negotiable.

Cons: statements can be harder to read, confusing for new businesses, some processors hide details.

Best for: merchants processing $10k+/month or anyone focused on long-term cost savings.

Cash discount programs

You display a dual price: one for cash, one that includes the card service fee. Cash customers get the lower price; card customers pay the posted total (which already covers processing costs).

Pros: can significantly reduce or eliminate processing fees, legal nationwide when implemented correctly, helpful for tight margins.

Cons: requires compliant signage and receipt formatting, not ideal if most customers pay by card, some customers dislike higher card prices.

Best for: retail, convenience, auto repair, vape/tobacco, and high-volume counter-service businesses.

Merchant surcharging

A surcharge is added only when a customer pays with a credit card (debit cannot be surcharged). The surcharge is usually up to 3%. Example: $100 invoice becomes $103 on credit.

Pros: offsets credit card fees, legal in most states (with card-brand rules), common for professional services and high-ticket B2B.

Cons: cannot apply to debit, must follow signage and disclosure requirements, prohibited in certain industries or jurisdictions.

Best for: attorneys, accountants, healthcare, trades, and larger B2B transactions.

Swiped vs. non-swiped (card-present vs. keyed/online)

Processors charge different rates depending on how the card is accepted. Card-present transactions (chip, tap, swipe) carry the lowest risk and interchange. Card-not-present (online checkout, phone orders, manually typed) are higher risk and cost more.

Understanding the mix between in-person and online/keyed sales helps explain why your effective rate fluctuates.

Choosing the right model

It depends on your industry, average ticket, in-person vs. online mix, monthly volume, and whether you’re willing to pass fees to customers. Many merchants don’t know which model they’re on or whether it’s competitive.

Next steps

A fee analysis of your current statement reveals your effective rate, how your provider charges you, and opportunities for savings. If you’d like a clear breakdown—no sales pitch—upload your statement for a free analysis and we’ll translate it into plain English.