How To Think About Pricing & Fees: A Guide for Payment Processing

Common Pricing Models

Payment processors offer various pricing structures to meet different needs and transaction patterns. Understanding these different models helps you meet your merchants’ unique needs.

Each approach has its strengths and trade-offs. For example, flat-rate pricing offers predictability, while interchange-plus models prioritize transparency. Some models cater to small businesses with low transaction volumes. Meanwhile, others are ideal for high-volume enterprises looking for cost savings.

This section will explore the most common payment pricing models and how they work. We’ll equip you with the knowledge to choose a model that balances simplicity, flexibility and profitability.

Tools To Help You Decide
Need help choosing the best pricing model? Check out our Checklist for Choosing a Payment Gateway for actionable steps and considerations.

Interchange Plus Pricing

Interchange plus pricing is one of the most transparent pricing models in payment processing. This model separates the interchange fees — the base fees set by card networks like Visa and Mastercard — from the processor’s markup. This makes it easier to see exactly what you’re paying for. Let’s look at the pros and cons.

Pros:

• Transparency: Merchants see precisely how much they pay for interchange fees versus the processor’s markup
• Flexibility: Merchants can negotiate lower markups based on transaction volume or business type
• Scalability: This model is ideal for high-volume businesses that benefit from competitive rates and detailed cost visibility

Cons:

• Complexity: Interchange rates vary by card type, transaction size and merchant category. These variations make cost predictions harder. To better understand how interchange rates work at different levels, check out our guide on Understanding Level 2 & 3 Interchange Rates
• Administrative Challenges: Merchants may need more time and effort to analyze statements and understand their true costs

This pricing model is a great option for businesses with high transaction volumes, such as ecommerce platforms, subscription-based services and large-scale enterprises. It allows you to maximize cost savings while gaining valuable insights into payment processing fees.

Tiered Pricing

Tiered pricing organizes transactions into three categories: qualified, mid-qualified and non-qualified. Each tier represents a different cost level based on factors like the card type and how the transaction is processed. Although three tiers are the most common arrangement, some tiered pricing structures can include as many as eight different buckets. Here’s how it works and when it makes sense.

Pros:

• Simplicity for Merchants: Merchants can only see a few rate categories. This restriction makes pricing uncomplicated at a surface level
• Ease of Setup: Straightforward pricing can simplify the setup process by reducing confusion about costs. This appeals to businesses that are new to payment processing.
• Scalable Options: Providers can adjust tiers based on merchant needs, offering flexibility in rate structures

Cons:

• Opaque Costs: Merchants don’t see the breakdown of fees. That lack of detail might make it harder to determine how much they are paying for specific transactions. To navigate the challenges of fee transparency, consider using tools outlined in our Payment Integration Checklist
• Higher Costs: Many transactions fall into the mid- or non-qualified tiers. These carry higher rates, making this model less cost-effective for some merchants

Small to mid-sized businesses, such as local retailers and service providers, often use tiered pricing. This is because they prioritize simplicity over transparency. Tiered pricing is less suited for high-volume merchants or those who require detailed visibility into processing fees.

Flat Rate Pricing

Flat rate pricing is a straightforward and predictable fee structure. Merchants pay a single fixed percentage for every transaction, regardless of the card type or how the payment is processed. Here’s what makes it appealing and when it’s the best choice.

Pros:

• Predictability: Merchants know what they’ll be charged per transaction, making cost planning simple
• Ease of Use: There’s no need to analyze complex fee statements or understand interchange rates
• Accessibility: This model is ideal for small businesses or start-ups that want a hassle-free pricing model

Cons:

• Higher Costs for High-Volume Merchants: If you process many transactions, you may pay with this model than with others like interchange plus
• Lack of Transparency: Merchants don’t see a breakdown of fees, making it harder to understand the true cost of payment processing

Flat rate pricing works well for small businesses, freelancers or start-ups with low transaction volumes. It’s also popular with companies that prioritize simplicity and don’t want to spend time analyzing complex fee structures.

Subscription-Based Pricing

Subscription-based pricing replaces or complements per-transaction fees with a fixed monthly cost. Merchants pay a predictable amount to access payment processing services, often alongside lower per-transaction rates. Here’s why this model is gaining popularity and who it works best for.

Pros:

• Predictable Costs: A fixed subscription fee simplifies budgeting and reduces surprises in monthly statements
• Cost Savings for High-Volume Merchants: If you have many transactions, you can save significantly compared to percentage-based pricing models
• Scalability: Merchants benefit from low transaction fees as their volume grows, making it appealing to those who want to scale

Cons:

• High Upfront Cost for Small Businesses: Merchants with lower transaction volumes might pay more than they would with other models
• Limited Fit for Low-Volume Merchants: This model isn’t as cost-effective for companies with sporadic or minimal transactions

Subscription-based pricing is excellent for high-volume merchants. Platforms like Shopify and other enterprise-focused payment processors successfully use this model to offer value to scaling businesses. Subscription-based pricing can also appeal to SaaS platforms that integrate payment processing into their offerings. By leveraging predictable costs, SaaS companies can bundle payments with their core services, creating a seamless experience for their users while potentially reducing fees at scale.

Learn More About Subscription Models
Want to dive deeper into subscription-based pricing? Our whitepaper, The Ultimate Embedded Payments Guide for SaaS Providers, explores how SaaS companies can leverage subscription payments effectively.

Blended Pricing

Blended pricing combines multiple pricing components — such as interchange fees, processor markups and other costs — into a single rate. Merchants are charged one consolidated fee per transaction, which can vary based on card type and processing method. Here’s how it works and where it’s most valuable.

Pros:

• Simplified Presentation: Merchants receive one flat rate per transaction, reducing the need to understand detailed fee breakdowns
• Flexibility: This model allows payment processors to customize rates for different merchant types or transaction patterns
• Predictability: For merchants, blended pricing can offer stability without diving into fee specifics

Cons:

• Lack of Transparency: Since fees are bundled, merchants may find it difficult to see how much they pay for individual components, like interchange
• Potential Confusion: The variability in blended rates (based on factors like card type) can make it harder for merchants to predict costs for certain transactions. Blended pricing often obscures the breakdown of individual fee components. That can frustrate merchants when transaction costs vary unexpectedly. For example, two transactions of the same amount might incur different fees based on factors like card type or processing method, even though they fall under a ‘single rate’

Blended pricing is often used for mid-sized merchants who prioritize simplicity but don’t need the granular cost breakdowns offered by models like interchange plus. It can also suit businesses with mixed transaction types, like retail stores that handle in-person and online sales.

NMI’s Pricing Model

Choosing the right pricing model is so crucial. At NMI, we offer flexible, transparent solutions tailored to your needs. Learn more about how NMI’s white-label solutions can help you elevate your merchant offerings in our White Label Payments guide.

Our pricing structure is designed with scalability in mind. We provide tools that help you meet the diverse needs of your merchant base. Our platform also offers advanced analytics and reporting tools to help you understand fee structures and improve profitability. Need to calculate transaction costs? Our user-friendly tools break down fees and markups so you and your merchants always know where your money goes.

Partnering with NMI gains you a trusted payment processor that combines flexible pricing strategies with technology to make managing fees seamless. If you’re ready to elevate your payment processing game, let our expert team help you create a model that works for everyone.