If you own a business in Canada, you've probably noticed that payment processing companies don't all charge the same way.
Some advertise one flat percentage for credit card transactions. Others offer cost-plus pricing, where processing costs and the provider's markup are separated. And some use tiered pricing, where transactions are grouped into different rate categories.
These pricing structures can make a significant difference in what your business pays to accept credit cards.
But how do they actually work, and which one makes the most sense?
In our previous articles, we explained how payment processing works, where credit card processing fees come from, and how to read your merchant statement.
Now, let's look at the three common pricing models Canadian businesses should understand.
First, What Makes Up a Credit Card Processing Fee?
Before comparing pricing models, it helps to understand what you're paying for.
Credit card processing costs generally consist of three components:
Interchange fees: Paid to the financial institution that issued your customer's card. Card-network fees: Charged by networks such as Visa and Mastercard. Processor markup: The amount your payment provider charges for its services.
The underlying interchange and card-network fees can vary depending on the card and transaction.
The main difference between pricing models is how those costs are passed along, grouped or bundled into what your business pays.
What Is Flat-Rate Payment Processing?
Flat-rate pricing is one of the simplest models to understand.
Your payment provider charges a predetermined rate for transactions within a particular category, rather than showing the individual underlying costs.
For example, a provider might charge 2.5% for in-person credit card transactions.
A $100 purchase would cost $2.50 to process, while a $200 purchase would cost $5.00.
The calculation is straightforward, which makes it easy for business owners to estimate their processing expenses.
The Advantages of Flat-Rate Pricing
The biggest advantage is simplicity.
You generally know what percentage you'll pay for a particular transaction category without needing to understand interchange rates or card-network assessments.
Flat-rate providers may also offer convenient equipment, integrated software and relatively straightforward setup.
For businesses just starting out or processing relatively small amounts each month, that convenience can be appealing.
The Potential Downside
Not every credit card costs the same amount to process.
Some transactions have lower underlying costs, while others have higher costs.
With flat-rate pricing, those differences are generally bundled into the advertised rate.
This means your business may pay the same flat percentage on transactions with different underlying costs.
As your monthly processing volume grows, that difference can become more significant.
Flat-rate pricing isn't automatically a bad option. But a simple advertised rate doesn't necessarily mean you're getting the lowest overall cost.
What Is Tiered Payment Processing?
Tiered pricing works differently.
Instead of charging one flat percentage or separately passing through underlying processing costs, the payment provider groups transactions into different pricing categories.
These categories are commonly called:
Qualified, Mid-Qualified and Non-Qualified.
Each category has its own processing rate.
How Do Tiered Rates Work?
A tiered pricing structure might look something like this:
| Pricing Tier | Example Rate | | ------------- | -----------: | | Qualified | 1.59% | | Mid-Qualified | 2.19% | | Non-Qualified | 2.89% |
These rates are illustrative and do not represent a specific provider's pricing.
The provider determines how transactions are classified according to its pricing rules.
A transaction that meets the provider's qualified criteria receives the qualified rate.
Other transactions may fall into the mid-qualified or non-qualified categories and be charged higher rates.
The important thing to understand is that these tiers are created by the payment processor's pricing structure, rather than being universal interchange categories established by Visa or Mastercard.
Why Tiered Pricing Can Be Confusing
One of the challenges with tiered pricing is that business owners may focus on the lowest advertised rate.
For example, a provider might advertise a qualified rate of 1.59%.
That sounds attractive.
But what happens when a significant portion of your transactions are charged at 2.19% or 2.89% instead?
Your actual processing costs can end up being considerably higher than the advertised qualified rate suggests.
Different credit cards, transaction methods and processing conditions may affect which tier applies.
And because each provider can define its tiers differently, comparing two tiered pricing offers isn't always straightforward.
The Main Concern With Tiered Pricing
The biggest issue isn't necessarily that tiered pricing is always more expensive.
It's that the pricing structure can make it harder to identify the processor's actual markup over the underlying interchange and network costs.
A merchant statement might show transactions charged at qualified, mid-qualified and non-qualified rates without clearly separating what the card networks and issuing banks charge from what the processor earns.
That makes it more difficult to evaluate whether your pricing is competitive.
If you're on tiered pricing, it's worth understanding how much of your monthly volume falls into each category and what those categories are costing you.
What Is Cost-Plus Payment Processing?
Cost-plus pricing, also known as interchange-plus pricing, takes a more transparent approach.
Rather than grouping transactions into processor-defined tiers or combining everything into a flat percentage, cost-plus pricing separates the underlying costs from your payment provider's markup.
The basic structure is:
Interchange + Card-Network Fees + Processor Markup = Total Processing Cost
For example, suppose a transaction has these costs:
Interchange: 1.20% Card-network fees: 0.10% Processor markup: 0.20%
The combined percentage-based cost would be approximately 1.50%.
On a $100 transaction, that would be approximately $1.50, before any additional applicable charges.
These numbers are illustrative. Actual costs depend on the card and transaction.
Why Cost-Plus Pricing Is Different
The main difference is that your processor's markup is identifiable.
If a transaction has lower underlying costs, those lower costs can be reflected in what you pay.
If another transaction has higher underlying costs, the total processing cost may be higher.
Rather than assigning transactions to broad pricing tiers, the underlying interchange and network costs are passed through, with the provider's agreed markup added.
This makes it easier to see how your processing costs are structured.
Cost-plus pricing can sometimes make merchant statements more detailed, but that additional information provides greater visibility into what your business is paying.
Comparing the Three Pricing Models
Here's a simple side-by-side comparison.
| Feature | Flat-Rate | Tiered | Cost-Plus | | ---------------------- | -------------------------------- | ------------------------------- | ---------------------------- | | How pricing works | Set rate by transaction category | Processor-defined pricing tiers | Underlying costs plus markup | | Interchange visibility | Usually bundled | Usually bundled into tiers | Generally identifiable | | Processor markup | Not separately shown | Not separately shown | Separately identifiable | | Rate predictability | High within each category | Depends on tier distribution | Depends on card mix | | Transparency | Limited underlying cost detail | Can be difficult to evaluate | Greater cost visibility | | Main advantage | Simplicity | Easy-to-present rate categories | Transparent cost structure |
Each model has different characteristics, and the lowest-cost option depends on your actual transactions and fees.
How Much Difference Can Pricing Make?
Let's look at a simplified example.
Suppose your business processes $50,000 in monthly credit card sales.
Here are three hypothetical processing scenarios:
| Pricing Model | Illustrative Average Rate | Monthly Cost | | ------------- | ------------------------: | -----------: | | Flat-Rate | 2.50% | $1,250 | | Tiered | 2.10% | $1,050 | | Cost-Plus | 1.65% | $825 |
In this example, cost-plus pricing would represent:
$425 in monthly savings compared with flat-rate pricing. $225 in monthly savings compared with tiered pricing.
That works out to $5,100 or $2,700 annually, respectively.
However, these are hypothetical examples, not typical or guaranteed savings. They assume the same credit card sales and exclude additional per-transaction, equipment and monthly fees.
A different card mix or pricing arrangement could produce very different results.
The purpose is to demonstrate why understanding your pricing structure matters, rather than assuming one advertised rate tells the entire story.
Don't Forget About Debit and Other Monthly Fees
Credit card processing is only one part of your payment-processing costs.
Canadian businesses should also review their Interac debit fees, equipment rentals and other monthly charges.
For example, two providers might have similar credit card processing rates but charge very different amounts for payment terminals or monthly account services.
A provider might also advertise a low processing rate while charging additional authorization, reporting or account fees.
That's why a proper comparison should include the complete cost of your payment-processing setup.
The most important number isn't always the advertised rate. It's what your business actually pays each month.
Which Pricing Model Is Best for Your Business?
There isn't one pricing structure that's automatically the cheapest for every business.
Flat-rate pricing can be convenient for newer businesses that want straightforward fees and an easy-to-manage payment setup.
Tiered pricing may look simple initially, but it's important to understand how transactions are classified and how often higher tiers apply.
Cost-plus pricing is particularly worth evaluating if your business processes a consistent amount each month and you want greater transparency into your processing costs.
The best approach is to compare the different options using your actual transaction history.
Your merchant statement can show how much you process, the fees you're paying and the types of transactions your business accepts.
That information makes it possible to build a much more accurate comparison than simply looking at advertised percentages.
Why JAZ Payments Uses Cost-Plus Pricing
At JAZ Payments, we believe business owners should understand exactly what they're paying for.
That's why we use transparent cost-plus pricing.
Instead of offering an attractive advertised rate that may only apply to certain transactions, we focus on showing you how your processing costs are structured and what our markup looks like.
One of the first things we typically ask for is a recent merchant processing statement.
With that statement, we can review your current pricing model, identify the different fees you're paying and prepare a side-by-side comparison using your actual processing activity.
If we can save your business money, we'll show you where those savings come from.
And because we're a Canadian family-run business, you'll have direct access to our team whenever you have questions or need support.
We also offer month-to-month service with no long-term processing commitments or termination fees, allowing you to try our service without being locked into a lengthy agreement.
Our goal is to make payment processing simpler, more transparent and easier to manage.
Understanding Your Pricing Is the First Step
Flat-rate, tiered and cost-plus pricing all allow businesses to accept credit card payments.
What changes is how those processing costs are calculated and presented.
Flat-rate pricing emphasizes simplicity. Tiered pricing groups transactions into different rate categories. Cost-plus pricing separates underlying costs from the processor's markup.
Understanding those differences puts you in a better position to evaluate your current provider and make informed decisions.
And if you're unsure which pricing structure you're currently on, your merchant statement is a good place to start.
Want to Know What Your Business Is Really Paying?
Send JAZ Payments a recent merchant processing statement.
We'll explain your current pricing structure, review the different fees and prepare a side-by-side comparison showing how our cost-plus pricing stacks up.
No pressure and no obligation to switch. Just a clearer picture of your costs and whether there's an opportunity to save.
