Interchange Plus vs Flat Rate: What's the Best Deal for You?

Jul 23rd, 2024

Payment Processing Interchange Event & Equipment Rentals

When it comes to accepting payments for your rental business, there are endless options out on the market today. The problem is that they all come with fees, and it can be confusing to wade through which payment method offers the best deal for your business. Is it better to choose an interchange plus vs. a flat rate model?

Don’t sign on the dotted line with a payment processor until you understand which one benefits your bottom line the most!

What is Interchange Plus Pricing?

Interchange plus pricing is a transparent pricing method with no hidden fees for your payment processing. Instead of charging a flat rate, this method passes the exact costs of the payment directly to you. This includes bank fees and card brand fees (known as interchange).

Then, your processing partner will add a small payment processing fee known as basis points. This is where the payment processor earns money for their services.

There are no easy answers for just how much interchange plus pricing will cost. Every card brand will charge a different interchange rate based on industry and card type (such as reward, corporate, and bank cards, as well as credit vs. debit cards). It can also vary based on the rewards used and whether the card was present during the transaction.

The interchange rate charged by the card brand will be the same regardless of the processor.

What is Flat Rate Pricing?

On the other hand, a payment processor could also charge a flat rate instead of passing along the variable costs of interchange pricing. This is a straightforward way to know what payment processing fees to expect because it will always be the same. It is typically a percentage of the transaction plus a flat-rate fee per transaction.

The flat rate for payment processing will always be high enough to cover the highest interchange rate so that the processor doesn’t lose money on the transaction. If one card charges 1.5 percent and another charges 2.5 percent, the flat rate will likely be more than 2.5 percent so that the processor covers their bases.

For example, Stripe charges a flat rate of 2.9 percent plus a 30-cent transaction fee on each order. They do not offer negative interchange which would give you back the interchange fee if you process a refund. As a result, the fees for payment processing through Stripe can be quite high compared to an interchange plus model.

Interchange Plus vs. Flat Rate: Which is Best for You?

With some basics in place, it’s time to consider whether interchange plus is better than flat rate fees. Both have a place in managing a rental business, but you may find that one works better for your business than the other.

A flat rate is straightforward, making it easy for you to factor this cost into the rest of your business model. It tends to work well for companies that are just starting and getting their feet under them. It might also work well if you only have a single rental property with no plans to expand in the future.

However, one major disadvantage of processors like Stripe is the high fees. While the flat rate makes it straightforward to figure out what you’re going to pay and to predict costs, interchange plus pricing is more cost-effective for growing businesses. There is also minimal transparency with flat rate processing because businesses will never know exactly what the interchange fee is.

For most rental companies, interchange plus pricing will be the best way to keep more money in your pocket. When you process payments this way, you get complete transparency. This gives you a clear insight into exactly what the payment processing fee was. You aren’t going to overpay on credit cards that have a lower interchange rate.

As a result, interchange plus pricing is ideal for a growing STR business that wants to scale. It’s fair and simple with lower out-of-pocket costs because you get better rates. This pricing program allows you to take advantage of the best interchange rates compared to flat rate systems.

Interchange Plus vs Flat Rate Example

Curious about what the difference looks like in the real world? Imagine this scenario: You have two bookings at $1,000 each. Here’s what that might look like with each pricing model so you can get a better idea of how this plays out practically.

Interchange Plus

For the first booking, let’s say you had a relatively low interchange rate of just 1.5 percent and 10 cents. The second booking was slightly higher at 2.5 percent and 10 cents. That puts you at $15.10 for the first transaction and $25.10 for the second transaction.

Both these transactions also have a payment processing of 35 basis points, which is 0.35 percent of the transaction. This adds another $3.50 to each booking ($7 total), which is your payment processor’s cut of the transaction.

This all adds up to a grand total of $47.20 in payment processing fees.

Flat Rate

For simplicity, let’s consider flat rate fees using the fees set out by Stripe which are 2.9 percent of each transaction, plus 30 cents. For two $1,000 bookings, this adds up to $58.60 total in payment processing fees.

At $58.60, the flat rate fee ends up higher than the interchange plus fee of $47.20. At a difference of $11.40, this might seem minimal in the grand scheme of things, but this was only for $2,000 in transactions! The difference can significantly add up over time for a busy rental business.

Get Interchange Plus Pricing and More with Ascent

Ready to reduce your payment processing fees and improve your bottom line? With over 20 years of experience working with the rental industry, Ascent Payment Solutions has the technology, experience, and support to offer what your business needs. Interchange plus pricing is just the beginning – we also offer net billing, compliant surcharge solutions, and more to save you on the overhead costs of doing business.

If you’re curious how much you could save with Ascent, try our effective rate calculator to estimate your current cost of accepting credit cards!