Are you overpaying for merchant processing?

How closely are you reading your monthly payment processing invoice?

If, as a merchant, you're paying without understanding how processors can hide and inflate fees, you could be significantly overpaying.

“I work in finance and analyze a lot of our clients’ merchant statements from other processors. I see many types of buried fees, all with different descriptions,” explained Michael Amen, Associate Vice President, Finance and Accounting for ConnexPay. “Merchant processing statements are like snowflakes—no two are the same.”

What's Your Pricing Model?

First, it’s important to understand that there are three pricing models processors commonly use:

• Flat-rate pricing
• Tiered pricing
• Interchange-plus pricing

Check your statement to find out what type of pricing model you're set up with. It’s the first step toward understanding what you’re paying your processor—and whether you're overpaying.

Flat-Rate Pricing: Hidden and Inflated Fees

Processors that utilize flat-rate pricing charge one fixed fee for every transaction, regardless of the actual interchange cost. While this seems attractive for its consistency, merchants rarely benefit from this pricing structure.

“While consistency and predictability are benefits of this type of pricing, the downside is that fees can be as high as 3.5% per payment, with no clear distinction as to what is going to the card networks versus the processor,” Amen commented. “Processors don’t want to lose money to the card networks, so they always inflate their price to exceed every possible interchange fee. If a merchant is paying via flat-rate pricing, it will be inflated in a way that is not visible without a deep analysis of the actual base interchange cost.”

Tiered Pricing: The Low Rate That's Nearly Impossible to Achieve

To attract prospective customers, many processors use a tiered pricing model that advertises a low rate for “qualified” transactions—but applies much higher rates for “mid-qualified” and “non-qualified” ones.

What qualifies a transaction as "qualified"? That depends entirely on the processor—and they get to make that call at their discretion.

“Tiered pricing, and the way transactions are classified as qualified or non-qualified, is generally the biggest offender of hidden prices,” said Amen. “I’m actually very shocked by how shameless this practice can be—you’ll see only 5–10% of volume land in the qualified bucket at the lower rate. The rest of the transactions often end up in the non-qualified bucket. For merchants that ConnexPay helps by reviewing their processing costs, we typically see about 90% of their volume in the non-qualified category, which of course carries a much higher surcharge.”

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Interchange-Plus Pricing: Transparency Through Itemized Fees

Interchange fees apply to every credit and debit card transaction. These rates are set by the card networks (Visa, Mastercard, etc.) and are consistent across processors, regardless of the pricing model.

Processors choose how to pass these fees to merchants:

• Flat-rate and tiered models obscure them.
• Interchange-plus pricing passes them through directly, adding a fixed processor markup.

This model offers complete transparency—interchange fees fluctuate based on card type, but the merchant sees a full breakdown of costs, including:

• Interchange fees
• Card brand assessments
• Processor markup

“At ConnexPay, we use the interchange-plus structure. Clients can itemize exactly where every fee is coming from, and it’s extremely transparent,” said Amen. “I think the most important—but often overlooked—aspect in merchant processing fee structures is transparency.

With flat-rate or tiered models, it’s hard to tell what you’re paying a processor for because all fees get lumped into one charge. While convenient from a reconciliation standpoint, it makes it extremely difficult to understand what you're actually paying.”

Merchants may hesitate to choose interchange-plus pricing due to its variability, but ultimately it comes down to a tradeoff: Do you want predictability or transparency?

Know Your Rights

Regardless of the pricing model, understanding your fee structure is critical to determine how much you’re paying, why you’re paying it, and whether you're being overcharged.

As a merchant, you have the right to ask your processor to walk you through every line item in your invoice. If they comply, you can question specific fees. If they refuse, they may be shielding hidden fees.

Michael Amen is the Associate Vice President, Finance and Accounting at ConnexPay. His role includes analyzing merchant statements for prospective customers to uncover hidden costs and provide transparent alternatives.