What is the difference between interchange plus and tiered Pricing?

Interchange plus pricing and tiered pricing are two common pricing models used in credit card processing.

Interchange plus pricing is a transparent pricing model that breaks down the cost of each transaction into two parts: the interchange fee, which is set by the credit card network (Visa, Mastercard, etc.), and the markup fee, which is charged by the payment processor. The interchange fee is the same for every processor, but the markup fee can vary depending on the processor's pricing model. With interchange plus pricing, the markup fee is a fixed percentage or dollar amount above the interchange fee, so you can see exactly how much you're paying for each transaction.

Tiered pricing is a more complex pricing model that groups transactions into different tiers or categories based on factors such as the type of card used (debit, credit, rewards, etc.), the risk level of the transaction, and the size of the transaction. Each tier has a different processing rate, which can be a flat rate or a percentage of the transaction amount. Tiered pricing can be less transparent than interchange plus pricing because it can be difficult to determine which tier a transaction falls into and what the actual cost is.

In general, interchange plus pricing is considered more transparent and fair because it separates the actual cost of the transaction from the processor's markup fee, while tiered pricing can be more confusing and potentially more expensive, especially if a merchant processes a lot of transactions that fall into higher pricing tiers.

Some merchants, however, prefer tiered pricing due to the fact that they like know the flat rates for the card categories that they are paying. This is generally a disadvantage due to processors markup is typically higher on the tiered pricing model.