JAZ Info Series #2: How to understand Payment Processing Pricing

Welcome to the second installment of JAZ’s Payment Processing Info series! For business owners, knowledge is power. We work with many businesses where owners want to focus on what they do best and we understand that. However,  when it comes to your hard-earned money you deserve to know exactly where it’s going and how it got there.

Now before we get into the different forms of pricing plans, it’s important to understand some of the basic costs of processing.


The interchange rate is the actual cost of every card that’s used. There’s no one interchange rate, it changes for every single card. This rate will vary depending on the points or rewards attached to each specific card. A card with more rewards will cost more because the bank is paying more to provide the cardholder with the rewards associated with the card. These rates are never a flat cost, they are always charged as a percentage of a transaction. For example a standard VISA consumer card costs around 1.4%. So if a $100 sale was made with this card then the interchange cost would be $1.40. It’s important to note that these rates are never stagnant and are constantly adjusted by the credit card companies (VISA, Mastercard, American Express).


On top of the interchange rate, assessment fees are an additional percentage of the transaction charge issued by the card brand companies (Visa, Mastercard, American Express). The actual cost of the assessment fee is very small, around 0.08 – 0.15% depending on the card brand. It’s essentially how VISA, Mastercard, and American Express make their money. While those fees may not sound too big, when you take 0.1% of all the transactions processed by these brands it’s quite a substantial amount.

The Pricing Models

Now that we have the basic costs out of the way let’s break down the different pricing models employed in the payment processing industry. There are 3 models that processors use:

1. Flat Rate Pricing

Flat rate pricing is the most simplified payment model. Since companies take plenty of different credit cards, it can be a bit overwhelming to see all the individual costs for every single card used. To make this easier on the merchant, what some processors will do iis charge one flat rate for every credit card transaction. Typically you’ll see this rate be around 2.5% to 3% to ensure that the processor covers the interchange and assessment fees for the most expensive of cards. The issue is that most transactions that merchants take are standard consumer credit cards or standard business cards. Those rates typically tend to fall in the 1.4% – 1.6% range, meaning that with a flat rate of 2.5% you can be getting charged a whole extra percentage point of your sales!

While the model certainly simplifies the processing charges, it doesn’t show the true cost (interchange) of each card and can ultimately lead to companies being grossly overcharged for their processing.

2. Tiered Pricing

Tiered pricing breaks down credit cards processed by merchants into different buckets or tiers. There are 3 different tiers used:

                      1. Qualified
                      2. Mid-Qualified
                      3. Non-Qualified

As you might have assumed already, different types of cards will fall into different tiers. Merchants will have a base or qualified rate, and then non-qualified fees are added on top of that. Each tier varies in cost depending mainly on the rewards, points, and risk associated with the different categories. Qualified cards are the least expensive and are typically your non-reward, standard cards. However, most merchants see more non-qualified transactions as the majority of consumers use either points, rewards, or cash back cards.

Again, this is a model that is used to simplify a merchant’s statement and make processing less intimidating for business owners. However, just like a flat rate, tiered pricing doesn’t distinguish the interchange costs of each card set by the credit card companies and the markup added by the acquiring bank. Processors ultimately have the ability to place different cards into certain qualifications resulting in merchants paying significantly more than the true cost of the cards used. A tiered system can be simpler, but it also blurs the line between interchange and a processor’s margin, leaving business owners vulnerable to overpayments on their processing.

3. Interchange Plus - “Cost Plus”

Interchange plus pricing provides the most transparent and honest numbers for merchants. It breaks down all the credit cards based on their respective interchange costs and shows the margin added by the processor. While it may show more numbers than the previous models (all the individual card costs), this pricing makes it very clear to merchants just how much each credit card costs and how much their processor makes on top of that. Since there’s clear visibility into what the processor makes, these rates are often more affordable and competitive. There’s no confusion, just complete transparency between processor and merchant.

At JAZ Payments, our clients are a part of our family. We believe there has to be mutual trust to form a successful partnership, which is why we don’t operate on long term leases or contracts. We want our customers to have the freedom to make the best decision possible for their business and our month-to-month rental plans with no termination fees allow them to do just that. We’ll clearly outline how much every card costs and exactly how much we make on top of that. Our standard pricing adds only 0.2% on top of interchange and assessment fees. To break that down into simpler terms, for every $10,000 of sales we only take $20, that’s it.

We are not only confident that we can help save your business money, but we will also provide the best possible service while doing so – Sign up with JAZ Payments today and let’s help you keep more of your hard earned money in your pocket.

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