Interchange Plus vs. Flat Rate Restaurant Credit Card Processing: What’s the Difference?

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Interchange Plus restaurant credit card processing explained, in comparison to Flat Rate payment processing.

Restaurant credit card processing can be a tricky area to navigate, particularly when it comes to pricing. The goal of this article is to clear up any confusion by providing you with an overview of the differences between the two main credit card processing pricing structures: Interchange Plus and Flat Rate.

The Interchange Plus model involves paying the Interchange cost of each card that your restaurant accepts, along with a fixed markup that your processor takes in as profit. Interchange Plus makes it somewhat difficult to predict costs because the types of cards guests use at your restaurant likely vary widely.

The Flat Rate model involves charging one simple flat rate for each transaction your restaurant processes, no matter the card used. This means that, as long as your average ticket doesn’t fluctuate significantly month-to-month, your costs will remain relatively constant with Flat Rates. 

In this article, we’ll delve deeper into each credit card processing structure, with an example at the end to help illustrate the key differences. Let’s dive in.

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The Basics of Interchange Plus

Let’s start with Interchange Plus. To understand this credit card processing pricing model, it’s first helpful to know what exactly Interchange fees are. Interchange fees are transaction fees that your restaurant must pay whenever a customer uses a credit or debit card to make a purchase. The fees are set by the major card associations (think Visa and Mastercard), and rates are specific to each card.

These Interchange rates typically increase twice a year, and they’re publicly available knowledge — you can see Visa’s Interchange card rates detailed here. The “Plus” is charged on top of the Interchange rate and typically includes a volume fee and a per-transaction fee. The “Plus” fee is collected by the processor, while the Interchange fee is paid to the card-issuing bank (think Chase or Bank of America). 

So let's say your restaurant makes a $10 sale with an Interchange Plus pricing structure. If the card used to pay for the meal has an Interchange rate of 1.80% + $0.20, you’ll pay (1.80% / $10) + ($0.20 / 1 transaction) = $0.38 in Interchange fees. Now let’s take a look at the Plus portion of this rate structure. Using the same example, if you’re paying Interchange + 0.50% + $0.10, then your Plus (also known as the markup) would be 0.50% of your volume and $0.10 per transaction. So, on the same $10 sale, your markup will be: (0.50% / $10) + ($0.10 / 1 transaction) = $0.15 in “Plus” fees. You’ll then be paying $0.38 (Interchange) + $0.15 (Plus) = $0.53 for this $10 transaction.

Take a look at the graphic below, which shows the varying Interchange card costs in blue and the markup associated with Interchange Plus in yellow. Your restaurant will pay the combined amount of both the Interchange fee and the Plus fee.

Interchange Plus Credit Card Processing

While the Interchange rate may fluctuate depending on card type, the markup or Plus fee (the processor's profit) is a fixed percentage and/or a per transaction fee for every sale. Not only do Interchange rates increase relatively regularly, but rates also differ across cards, making it difficult and sometimes confusing to predict your costs. Additionally, Interchange Plus pricing structures can often include monthly fees, most of which are unnecessary and expensive extra charges for your restaurant. This is why restaurateurs often opt for the simpler Flat Rate credit card processing model.

The Basics of Flat Rates 

Flat Rate credit card processing means your restaurant is charged one straightforward Flat Rate for every card your restaurant comes across, regardless of card type. If your Flat Rate is 2.00% + $0.15, and you make a $10 sale, you’ll pay (2.00% / $10) + ($0.15 / 1 transaction) = $0.35. With this model, you aren’t charged any Interchange rates or markups, just this one simple flat fee.

Because it eliminates uncertainty, it’s become an increasingly popular rate structure. With Flat Rates, you know exactly what you’re being charged, and there are typically no extraneous monthly fees — just the one clear-cut Flat Rate.

With so many fluctuating variables in your restaurant, it can be comforting to know that you’ll be able to predict your payment processing fees. Check out the graphic below, which depicts how a Flat Rate model works, highlighting its simplicity.

Flat Rate Credit Card Processing

Interchange Plus vs. Flat Rates in Action

Let’s tie together what we just covered: Here’s a brief example to further clarify the difference between the two credit card processing models.

Let’s start with Interchange Plus. Say you buy a kitchen range for $500 from Samsung. Assume that this product costs Samsung $350 to make, meaning the remaining $150 is profit for Samsung (think of this as the “Plus” fee we mentioned earlier).

When Samsung's cost to create this kitchen range inevitably rises due to an increase in aluminum costs, labor costs, and other related production costs from $350 to $400, the sales price for this same kitchen range will go up to $550 (the $400 cost plus the $150 fixed markup). When broken down, this example parallels the Interchange Plus pricing model.

Now let’s apply the same thinking and example to the Flat Rate model. Take the same $500 kitchen range and apply Flat Rate pricing principles to it. If Samsung operated under a Flat Rate processing model, they would simply charge you the flat rate of $500. The difference here is that now when Samsung’s cost to produce this kitchen range inevitably rises from $350 to $400, Samsung will be the one eating that cost increase, not you. They’d still be charging you a flat rate of $500 — their profit margin will just decrease from $150 to $100. The same principles apply to Flat Rate processing.

While Interchange Plus and Flat Rate are both valid and popular pricing structures, the ease of access, consistency, and simplicity of Flat Rate processing makes it that much more appealing to most restaurant owners. No one wants to be bogged down with lengthy statements and unclear costs. To learn more about how Flat Rates could be right for you, set up a time with a restaurant technology expert at Toast.

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