Interchange Plus Rates vs Flat Rates

Table of contents:
  1. What are interchange plus rates and what are flat rates?
  2. How do I know whether interchange plus rates or flat rates are better for my business?
  3. What are some examples of Australian payment processors?
card transaction

Payment processing rates are the fees businesses pay for the handling of credit and debit card transactions. When it comes to payment processing rates, options from payment providers include interchange plus rates and flat rates.

Below we discuss the interchange plus and flat rates in more detail and help you find the one that best suits your venue business.

What are interchange plus rates and what are flat rates?

Interchange plus rates

Interchange plus rates are a more flexible pricing structure in payment processing. This system involves processing fees that are broken down into two parts:

  • The interchange – The fee that comes directly from card networks (such as Visa or Mastercard).
  • The plus – The markup that your credit card processor is charging additionally. This fee comes in the form of a percentage fee and a transaction cost.

Examples of this include:

Flat rates

On the other hand, flat rates are a simplified pricing structure where businesses pay a fixed, predetermined fee for each transaction. While this model offers predictability and convenience, it may not be the most cost-effective option for businesses with a high transaction volume. 

  • Square offers online stores a starting flat rate of 2.2% per transaction
  • Tyro offers a fixed rate of 1.4% per transaction across all of their EFTPOS solutions
Interchange Plus RateInterchange plus rates provide a clear breakdown of fees, ensuring you know where your money is going.

You only pay the actual interchange fees, which can be lower than bundled rates.

Customised rates based on your specific business and transaction profile.

Encourages businesses to optimise processing and reduce costs.

Fluctuations in interchange fees don’t impact your profit margins.

Easier adherence to industry regulations and standards.

Ideal for businesses with large transaction volumes.

Supports various card types and processing methods.

As your business grows, you can benefit from lower interchange rates.

Attracts customers with transparent pricing and potential cost savings.
Can be more complex to understand than flat rates.

Can fluctuate, making it challenging to predict expenses.

Not ideal for low-volume businesses.

Some payment processors may charge more upfront.

Multiple rate categories can lead to confusion and billing errors.

Managing and reconciling various interchange fees can require additional time and effort.

Businesses looking for fixed, predictable costs may find Interchange Plus rates less suitable.

Without proper management, you may pay more in fees than with a flat rate.

Changes in interchange rates can affect your pricing.

Interchange Plus often involves different tiers and levels, complicating rate comparisons.
Flat RateFlat rates offer consistency in monthly expenses, making budgeting easier.

They are straightforward and easy to understand, reducing complexity in billing.

Small businesses benefit from the ease of use and cost predictability.

Flat rates often come with fewer hidden fees compared to other pricing models.

They are usually quick to set up, allowing businesses to start processing payments rapidly.

Perfect for businesses with sporadic or low transaction volumes.

Low-risk industries find flat rates cost-effective and hassle-free.

You won’t experience sudden cost fluctuations due to variable interchange fees.

Flat rates are typically fixed, eliminating the need for negotiation.

You know precisely what you’ll pay for each transaction, fostering trust with customers.
Flat rates may not reveal the breakdown of fees, making it challenging to understand your expenses.

Businesses with low transaction volumes might end up paying more with flat rates compared to interchange plus rates.

If your business processes a high number of transactions, flat rates can be less cost-effective.

Flat rates don’t consider varying ticket sizes, which can result in overpaying for smaller transactions.

Flat rates are generally fixed, offering less room for negotiation or customisation.

Businesses in industries with a higher risk of chargebacks or fraud might face higher costs with flat rates.

The flat rate landscape can vary widely between payment processors, making it crucial to choose the right provider.

Flat rates may not take advantage of cost-saving opportunities offered by interchange optimisation.

If your business operates globally, flat rates may not be cost-effective for handling cross-border payments.

Without transaction-based fees, there’s less motivation for businesses to optimise their payment processes.

How do I know whether interchange plus rates or flat rates are better for my business?

Determining whether interchange plus rates or flat rates are better for your venue requires careful consideration of several key factors:

Transaction volume

Consider the number of transactions your venue processes on a regular basis. If you have a high transaction volume, interchange plus rates may be more cost-effective as they can be tailored to each transaction’s interchange fee.

Average ticket size

Evaluate the typical ticket size for your venue’s sales. If your transactions vary significantly in size, interchange plus rates may offer better savings since they account for these differences.

Business type

The nature of your venue matters. Restaurants, retail stores, and e-commerce businesses may benefit from interchange plus rates due to the transaction diversity. However, some smaller, low-volume venues may find flat rates simpler and more predictable.

Risk tolerance

Consider your tolerance for risk. Flat rates offer predictability, making it easier to budget, while interchange plus rates can fluctuate based on the interchange fees, potentially resulting in cost variations.

Payment processor options

Compare the payment processing service providers available to you. Different providers offer various rate structures and fees, so it’s essential to obtain quotes and assess their offerings.

Rate negotiation

Evaluate your ability to negotiate rates with your chosen payment processor. Interchange plus rates are generally more negotiable, while flat rates are often fixed.

Cost analysis

Perform a cost analysis by calculating the total fees you would incur under both rate structures based on your historical transaction data. This can help you make an informed decision.

Long-term considerations

Think about the long-term goals and growth of your venue. What may be cost-effective today might not be in the future as your business evolves. Flexibility may be crucial.

Industry best practices

Seek advice from industry peers or associations to learn about best practices and what has worked well for similar venues.

Expert consultation

Consider consulting with a financial advisor or payments expert who can provide tailored recommendations based on your specific business needs.

Ultimately, the choice between interchange plus rates and flat rates will depend on your unique circumstances and priorities. By thoroughly assessing these factors and seeking expert guidance, you can make an informed decision that best suits your venue.

What are some examples of Australian payment processors?

There are several payment processors in Australia that cater to businesses of various sizes and industries. Here are some examples of Australian payment processors:

  • eWAY: eWAY is a popular payment gateway in Australia, offering a range of online payment solutions and integrations for businesses of all sizes.
  • Braintree: Braintree, a subsidiary of PayPal, provides payment processing services in Australia and offers a developer-friendly platform for online and mobile payments.
  • Stripe: Stripe is a widely used payment processing platform that operates in Australia, allowing businesses to accept online payments and handle subscriptions.
  • Pin Payments: Pin Payments is an Australian payment gateway that focuses on providing secure and simple payment solutions for online businesses.
  • PayPal Australia: PayPal is a global payment service that operates in Australia, enabling businesses to receive payments online and offering a range of payment options.
  • Square: Square offers point-of-sale (POS) and online payment solutions for Australian businesses, including card readers and online payment processing.
  • Tyro: Tyro is a fintech company that provides integrated payment and banking solutions to Australian businesses, particularly in the hospitality and retail sectors.
  • Afterpay: Afterpay is a buy now, pay later (BNPL) service that allows customers to make purchases and pay for them in instalments. It is widely used in Australia.
  • Adyen: Adyen is a global payment processing platform that serves Australian businesses by offering a wide range of payment methods and providing multi-currency support.
  • SecurePay: SecurePay is a payment gateway and merchant services provider that offers a range of payment solutions for Australian businesses.
  • ANZ eGate: ANZ Bank offers its payment gateway service called ANZ eGate, providing secure online payment processing solutions for businesses.
  • VenueSmart: VenueSmart is known for providing seamless payment experiences for venues and event organisers.