Flat-rate vs interchange-plus: which is cheaper for a restaurant?

You pay one rate on every card sale, whatever the card. Square, for example, publishes 2.6% + 15¢ for tapped, dipped or swiped cards on its free plan, and 3.5% + 15¢ for keyed-in cards.

Good: easy to predict, no statement to decode, often no monthly fees or long contracts.

Not so good: you pay the same rate on a cheap debit card as on a premium rewards card, so the processor keeps the difference on every low-cost card. You can’t see or negotiate the markup.

You pay each card’s actual interchange (set by the card networks and paid to the guest’s bank), the card-brand fees at cost, and then a fixed markup to the processor.

Good: you get the benefit of cheap cards. Debit cards from large banks, for example, have interchange capped by federal rules; Visa’s current schedule lists them at 0.05% + 21¢. The markup is written down, so you can compare quotes like for like.

Not so good: longer statements, often a monthly fee, and sometimes a contract with an early-termination fee. Your rate moves a little each month with your card mix.

Tiered pricing sorts each sale into “qualified”, “mid-qualified” or “non-qualified” buckets, with higher rates in each. The processor sets the rules for which bucket a sale lands in. A low “qualified” rate in a sales pitch can turn into a much higher effective rate once rewards, keyed-in and online sales are moved to the other buckets. If you are on tiered pricing, ask for interchange-plus. See how to read your merchant statement to check.

An example restaurant takes $60,000 a month in card sales over 2,000 sales (a $30 average ticket), and nearly every card is tapped or dipped.

Here interchange-plus costs about $471 a month less, or about $5,650 a year. The interchange and card-brand figures are our calculator’s built-in estimates for a restaurant where cards are tapped or dipped; your real mix of debit, rewards and business cards will move them. The methodology page lists every assumption.

• Low card volume. Monthly fees on an interchange-plus account weigh more when sales are small. A new place, a food truck or a seasonal stand may pay less overall on flat rate.
• Your POS comes with its own payments. Some systems only work with their own processing, so switching would mean changing the POS as well.
• You want no contract. Flat-rate providers often let you leave any time.
• You value a simple statement more than the saving, at least for the first year.

Even then, re-check once a year. As sales grow, the gap usually grows with them.

1. Get your last three statements and work out your effective rate (total fees ÷ card sales).
2. Ask each processor for the markup in writing: a percentage, a per-sale fee and every monthly or yearly fee.
3. Ask for the early-termination fee, the contract length and any equipment lease, in writing.
4. Ask them to price your actual statement, not a made-up one, and compare the totals in dollars.
5. Use the negotiation playbook for what to say to your current processor first. Sometimes they match.