Payment Processing 101: Interchange Plus Rates vs. Flat Rates vs. Tiered Pricing

Understanding credit card processing fees is one of the more difficult parts of being a business owner. Trying to grasp the difference between interchange plus rates, flat rates and tiered pricing can be confusing.

If that sounds familiar (or, more importantly if it doesn’t), then read on. We’ll explain the ins and outs of these three pricing models in simple, straightforward terms and along the way, we’ll help you understand what to consider when assessing which approach may suit your business.

• Credit card processing overview
• Credit card processing fees
• Flat rate pricing
• Interchange plus pricing
• Tiered pricing
• Deciding which structure is right for your business

Credit card processing overview

Before comparing interchange plus, flat rate processing and tiered pricing, let’s dive into a basic overview of how credit card processing works.

There are several parties involved in a typical card transaction:

• Issuing bank: This is the organisation that issues a credit, debit or prepaid card to a customer. Common examples include Westpac, Commonwealth Bank and ANZ.
• Card networks: These networks, such as Visa, Mastercard and eftpos, set rules and help route transactions between issuing banks and acquirers.
• Acquirer / processor. The acquirer, sometimes called the acquiring bank, is the financial institution or acquiring provider that enables a merchant to accept card payments and connect to the card network. A processor provides the technology that routes payment information between the merchant, acquirer, card network and issuing bank to authorise and settle transactions. In some cases, the same provider performs both roles, which is why the terms may be used interchangeably. 
• Payment provider. Payment facilitators, merchant service providers (MSPs) and independent sales organisations (ISOs) may also help merchants access acquiring services through acquirers and processors. Lightspeed Payments is an example of a payment facilitator.

Behind every seemingly simple swipe is a complex chain of communication between these parties. When a customer taps, swipes or inserts their card, the transaction is routed through the relevant payment provider, acquirer/processor and card network to the issuing bank for authorisation. The issuing bank then approves or declines the transaction.

If approved, the transaction is cleared and settled through the card network, acquirer and relevant payment provider, with the net funds deposited into the merchant’s bank account according to the applicable settlement process.

Card processing fees

Now let’s learn about the fees involved in card processing.  These can include interchange fees, scheme/network fees, and fees charged by acquirers, processors or payment providers. These fees inform the pricing model used to process card payments, and are a key input into the rates you’ll pay under both interchange-plus and flat rate pricing.

Changes to card surcharging from 1 October 2026

From 1 October 2026, Australian businesses will no longer be able to apply surcharges to eftpos, Visa, Mastercard and American Express card payments. While businesses will still incur costs for accepting card payments, these costs can no longer be passed directly to customers through a card surcharge.

This makes understanding how your card processing fees are structured particularly important. Knowing what you’re paying—and why—can help you better understand your payment costs and make informed decisions about what works for your business.

For more information about the changes and how to prepare, visit our RBA Surcharging information hub.

Interchange fees

Interchange fees are one of the costs involved in processing a card payment. They are generally paid by the acquiring bank or payment provider to the bank that issued the customer’s card.

The interchange fee can vary depending on factors such as the type of card used, whether it’s a debit or credit transaction and how the payment is processed. In Australia, interchange fees for certain card networks and transaction types are also subject to limits set by the Reserve Bank of Australia (RBA).

This means there isn’t necessarily one interchange rate that applies to every transaction or every merchant. The interchange fee is also only one component of the overall cost of accepting a card payment, with other fees potentially applying depending on your acquirer, processor or relevant payment provider and pricing model.

Miscellaneous fees

Depending on your provider, you may need to pay fees in addition to transaction-based processing fees.  For example, card terminal rental fees, PCI compliance fees, payment gateway fees, instant deposit fees and a subscription price that’s a flat fee per month. Review the applicable pricing and terms to understand what fees apply.

Flat rate pricing

Flat rate pricing is exactly what it sounds like. When you use a flat rate provider, all of your transactions fall under one rate. This rate includes both the interchange or wholesale rate plus any applicable acquirer, processor or payment provider’s fees or markup.

Most providers will offer slightly different rates for card-present (in-present) transactions vs. card-not-present (MOTO) transactions. ​​

Pros of flat rate card processing

• It’s easy to understand. Card processing fees and pricing can be pretty complicated, particularly where underlying fee components are not separately itemised. With flat rate processing, you generally pay the same stated rate for every transaction within the relevant category, which can be refreshingly simple.
• It’s predictable. As a small business owner, life likely keeps you guessing, but some measure of predictability is the key to staying sane. With a single rate it’s easier to predict your processing expenses month to month, which can help you budget effectively.
• Your rate stays consistent across different card types. The underlying cost of processing a payment can vary depending on factors such as the card and transaction type. With flat-rate pricing, you generally pay the same processing rate regardless of those underlying differences, making your costs simpler and more predictable.

Cons of flat rate processing

• Less transparency. The simplicity and predictability of flat-rate pricing can come at a cost. The provider may not show the interchange rate or their processing fee separately. This can make it harder to understand why you’re paying what you are, and it makes it more difficult to shop around to find the best price.
• Some payments can cost less than your flat rate. Interchange fees can vary depending on factors such as the card and transaction type. With flat-rate pricing, these differences are blended into one rate, which means lower-cost transactions may not result in a lower fee for you.

Should you choose a flat-rate payment processor?

As always, you know what’s right for your business. Flat-rate pricing is a popular method, and there are plenty of providers out there that offer flat-rate pricing, but the type of business you run matters. 

If you run multiple store locations or are an omnichannel operator, flat-rate pricing may be beneficial because of its predictability. If you’re juggling multiple stores and have a high monthly sales volume, knowing you’re paying the same rate for each transaction category may give you one less thing to worry about. 

Plus, for medium- and high-volume businesses, being able to accept all types of cards under one predictable rate can be  a huge plus—a bigger customer base means you’re more likely to see a variety of cards. 

Small businesses can also benefit from a flat rate, so this pricing model offers plenty of flexibility. 

Interchange plus pricing

The alternative to flat rate processing is interchange plus processing. Similarly, the name describes this type of pricing as well. You pay the applicable interchange and scheme/network fees, plus a processing fee. The biggest difference is that your card processing statement gives you more detail about the fees that make up each transaction.

Pros of interchange plus pricing

• Transparency. While it has the potential to make your card processing statement more complex than you might like, with interchange plus you’ll typically see more detail about the fees you’re paying for each transaction. This can help you better understand and compare what you’re paying.
• Some transactions may cost less. For example, debit card transactions are typically less expensive than credit.

Cons of interchange plus pricing

• It’s more complex. Because each transaction has a different price associated with it, and you can’t predict the exact number and type of transactions you’ll get each month, your costs become harder to predict.
• Some payments are more expensive. Certain charges have high interchange rates associated with them. When processor fees are added, the resulting fee might be more expensive than a flat rate pricing model.

How are interchange fees calculated?

Interchange fees aren’t necessarily the same for every card payment. The amount can vary depending on factors such as the type of card used, whether it’s a debit or credit transaction and how the payment is processed.

In Australia, interchange fees for certain card networks and transaction types are subject to limits set by the Reserve Bank of Australia (RBA). From 1 October 2026, new caps will apply to domestic card transactions, including 0.3% for consumer credit cards and 8 cents / 0.16% for debit and prepaid cards.

These caps apply to the interchange component of a transaction rather than the total fee a business pays to accept a card payment. Other costs can also form part of your overall payment processing fees, depending on your provider and pricing model.

This is one reason understanding your payment pricing model matters. With interchange plus pricing, changes to the underlying interchange fee are reflected separately from the additional processing fee charged by your provider.

Should you choose an interchange plus model?

For smaller business operations, interchange plus pricing might be useful because it provides more detail about the fees that make up each transaction. This can provide valuable insight into payment costs, monthly fee breakdowns and more. Ultimately, if you want more visibility, interchange plus could be the way for you.

If your business has a high sales volume or multiple locations, you probably already have accounting processes in place to provide detailed overviews of your sales history and transactions. 

Tiered pricing

Processors that use a tiered pricing model or bundled pricing can be less transparent than other pricing models, and you could end up paying more than necessary.

But, it’s useful to understand what tiered pricing is so you know what to look out for when comparing providers. 

Tiered pricing consists of a transaction fee and processing fee. Transactions are separated into categories, often called qualified, mid-qualified or non-qualified. The fixed rate varies based on the tier the transaction falls under.

Providers who use tiered pricing may not always clearly disclose how transactions will be categorised. This can make it  less transparent, because the rate you’re quoted may only apply to certain transaction types or tiers. 

After you’re signed up, you may find that some transactions are categorised into higher-cost tiers, which can increase the total amount you pay.

Which is right for your business?

Choosing between flat rate pricing and interchange plus pricing isn’t always an easy decision. Payment processing is an integral part of most businesses.

Most modern providers today have moved to a flat rate model, because it’s generally simpler for all involved parties.

It’s usually easier to combine your payment provider with your point of sale for one integrated payments solution. The two are closely connected, and if you have questions you can interact with the same support team.

There’s also less chance for human entry error, since the entire payment from beginning to end is managed by the same provider. Talk to an expert to learn more about Lightspeed Payments.

*This information is general in nature and does not constitute legal, financial or business advice. Businesses should check current requirements and seek professional advice where appropriate.