by Matt Rej
Businesses on flat-rate payment processing tend to like its simplicity. You know exactly what you’re paying for each transaction, so it’s easy to predict and budget for without any surprises.
And many merchants even recognize that they’re paying a premium for this perceived convenience.
The problem is that you’re not just paying a “little extra” for this setup. When you sit down and run the numbers, it’s clear that switching to interchange-plus pricing can save you thousands. Often tens of thousands annually.
- Interchange-plus pricing is more transparent.
- It’s almost always cheaper than flat-rate or bundled pricing.
- And you can get IC+ pricing without switching processors.
To illustrate this point, I’ve put together some simulated merchant scenarios across five industries where flat-rate processing is common.
I pulled real interchange rates from Visa, Mastercard, Amex, and Discover, so you can see what the underlying costs look like (something you’ll never see on a flat-rate statement).
Restaurant at 2.49% + $0.15 Flat Rate
Restaurant flat rates tend to look competitive on paper because the in-person percentage component seems reasonable. But if you’re running a high volume of smaller transactions, the fixed per-transaction fee can really push your effective rate higher.
Let’s say one location does $250,000 per month on 8,500 transactions. At 2.49% + $0.15 per transaction, you’ll pay $6,225 on the percentage and another $1,275 in per-transaction fees. That’s $7,500 in fees per month, putting your effective rate at 3%.
Some of the interchange categories sitting below those transactions:
- Visa Restaurant 2 (card present): 2.10%
- Mastercard Restaurant (World cards): 1.85% + $0.10
- Amex OptBlue Restaurant Tier 1: 1.85% + $0.10
- Discover Restaurants: 1.56% + $0.10 on Core, 1.90% + $0.10 on Core Plus
Premium cards cost a bit more. But things tend to balance out when you factor in regulated debit cards (capped at 0.05% + $0.22).
- This puts your blended interchange rate around 1.85%.
- We’ll add another 0.20% in pass-through assessments from the card networks.
- And we’ll say your processor markup is 0.15%
With interchange-plus, you’re looking at around 2.20% on interchange-plus vs. 3% on flat rate. That’s a gap of roughly 0.80% (or 80 bps).
Want to be a little more conservative with these estimates? That’s fine.
Even if we say the gap is closer to 60-70 bps, you’re still leaving serious money on the table if you’re on a flat rate.
At $250,000 per month, saving 60 basis points comes out to about $1,500 monthly and $18,000 annually. If your restaurant is doing double the volume and you’re saving 70 bps, those savings jump to $42,000 per year.
Retail Store Savings With Interchange Plus
The biggest gap between flat-rate and IC+ is on debit card sales. If you’re a retailer on flat-rate pricing, a regulated debit card and premium rewards card cost you the exact same rate, even though the underlying interchange on that debit is a fraction of the cost.
Here’s what’s actually underneath a typical in-store sale:
- Visa Product 2: 1.51% + $0.10 or 1.65% + $0.10 on Traditional Rewards or Signature cards
- Mastercard Merit III Base: 1.65% + $0.10 on Core, 1.80% + $0.10 on Enhanced Value
- Amex Optblue Retail Tier 1: 1.45% + $0.10
- Discover Retail: 1.57% + $0.10 on Core
- Regulated Debit: 0.05% + $0.22
Again, you’re going to have a range of other interchange categories apply. But this is a good indication of what the average costs will look like.
Once we tack on assessments and your processor markup, you’re looking at about 2.10% all-in on interchange-plus.
Now compare that to a store processing $200,000 per month on 2.6% + $0.15. With ~4,700 transactions, your effective rate is pushed to roughly 2.95%.
- Flat rate: 2.95% effective
- Interchange plus: 2.10% effective
- Gap: 85 bps
- Monthly savings: $1,700 on $200k volume
- Annual savings: $20,400 on the same volume
Is $20,000 really worth the “convenience” of having a predictable cost and a statement that’s easier to read? I wouldn’t pay an extra $5k or $10k for that. Nevermind $20k or more.
Why Orthodontic and Dental Practices Overpay on Flat Rates
Let’s look at some high-ticket transaction costs in this space, which is something we see regularly when auditing statements for our clients.
A patient paying $750 on a regulated debit card costs about $0.60 in interchange. On a 2.75% flat-rate plan, you’d pay $20.63 to process the exact same payment.
Credit cards aren’t nearly that cheap. But healthcare has its own discounted interchange categories:
- Visa Healthcare 2 (card present $500 and up): 1.43% + $0.05 on most cards
- Amex OptBlue Healthcare Tier 2 ($150.01 to $2,000): 1.85% + 0.10%
Visa Signature Preferred and Infinite cards bump that rate up. But once you account for debit, a blended interchange rate of around 1.65% is a safe estimate for a practice with larger treatments.
Now let’s say you switch to interchange plus and negotiate a 0.10% + $0.10 with your current processor.
Even if assessments and other fees push your IC+ effective rate to 2.00%, you’re at 75 bps below the 2.75% flat rate.
Here’s what that 75 bps gap looks like depending on how much your practice processes:
- $100,000 per month: $750 monthly, or $9,000 per year
- $250,000 per month: $1,875 monthly, or $22,5000 per year
- $400,000 per month: $3,000 monthly, or $36,000 per year
Dental and ortho is one of the biggest industries that we work with here at MCC. And I don’t think I’ve ever come across a statement here where the flat-rate structure was cheaper than interchange-plus.
And I’m talking about thousands of statements that I’ve seen in this industry over the years.
Ecommerce and Card-Not-Present (CNP) Transactions
If you’re selling online, you’re going to pay the card-not-present (CNP) rate on every transaction. Even the cheapest flat-rate processors probably won’t charge you much less than 2.9% + $0.30 unless you’re doing a ton of volume.
At $400,000 per month across 4,000 online orders, the flat-rate math comes out to:
- $12,800 total fees
- 3.2% effective rate
Now let’s see what this would look like if you switched to interchange-plus pricing.
- Visa Product 1: 1.89% + $0.10 or $2.04% + $0.10
- Mastercard Full UCAF: 1.95% + $0.10 or $2.10 + $0.10
- Amex OptBlue Retail Tier 2 Non-Swipe: 2.35% + $0.10
- Discover Ecommerce Secured: 1.80% + $0.10
These are notably higher than most of the other interchange categories we’ve covered so far. Pass-through assessments from the card networks are also a bit more expensive here, too.
After factoring in processor markup and assessments, you’re looking at about 2.55% effective on IC+ (honestly conservative, as it will likely be a bit less).
It’s still 0.65% cheaper than the 3.2% effective on flat-rate pricing.
Back to the $400,000 monthly ecommerce volume scenario, switching to IC+ would save you:
- $2,600 per month
- $31,200 per year
Professional Service Firms: Flat Rate Invoice Links vs. Interchange Plus
Accountants, consultants, and other professional service businesses often get paid through emailed invoices or keyed-in cards. And it’s common for flat-rate pricing here usually starts around 3.3% + $0.30.
Consider a firm collecting $250,000 per month across 200 invoices. For large-ticket payments, the $0.30 barely moves the needle. So the effective rate stays right around 3.3%, and results in ~8,250 in monthly merchant fees.
Now let’s look at some of these underlying interchange rates:
- Visa Services 1 (card not present, $100 and up): 1.65% + $0.10 or 1.80% + $0.10
- Mastercard Merit I: 1.95% + $0.10
- Discover Card Not Present: 1.91% + $0.10
- Amex Optblue B2B Tier 2 Non-Swipe ($400.01 to $7,500): 2.20% + $0.10
Business cards are the expensive part. Visa Business Product 1 and Mastercard small business Data Rate I both start at 2.65% + $0.10. But there are also commercial card savings programs available if you submit enhanced data.
With all of that considered, a 2.15% blended interchange is a fair estimate. And on interchange-plus we can put your effective rate around 2.40% after assessments and markup.
Now compare that to the 3.3% flat-rate from earlier. That leaves a gap of around 90 basis points.
And at $250,000 in monthly processing volume, you’d save about $27,000 per year by switching to interchange-plus pricing.
Moving to Interchange Plus Without Switching Processors
Across these five business categories, the gap between flat rate and interchange plus landed roughly between 60 and 90 basis points. And every example above works out to saving a minimum of five figures every year.
How much does your business process every month on a flat rate plan? Now calculate the savings using those numbers.
Let’s say you want to be even more conservative than that, and slash those numbers in half. Run the math on what 0.30% or 0.45% would save you on your total volume. I’m betting the numbers will still be substantial.
Here’s the part you need to understand: you don’t need to rip out your POS or move to a new processor to get interchange-plus savings.
Nearly every single payment processor on the market can move you to interchange-plus billing without changing anything else on your account. The catch is that they don’t always offer it, and they’ll only give it to you if you ask for it the right way.
That’s where we come in.
Here at MCC, we’ll audit your statements for free, figure out what your card mix actually costs at wholesale, and negotiate directly with your current processor to restructure your pricing. We work on a success-based model, so there’s nothing to pay upfront and you won’t pay anything unless we save you money.
We’ll also ensure that the IC+ rate your processor offers you is a fair one, and not something that will continue to unfairly pad their margins.
Book a free consultation to get started, and we’ll show you how much your flat-rate agreement is really costing you.