When you signed up for payment processing, you probably saw a number like 2.6% + 10¢ and thought: simple enough. One rate. Every card. Done.
That simplicity costs you. A lot.
What you weren't told is that payment processing isn't actually one cost — it's three distinct costs bundled together. The processor giving you that flat rate is betting that the bundle works in their favour, not yours. For most businesses processing more than $10,000/month, it does. In their favour.
Interchange-plus pricing pulls those three costs apart and charges you for each one at cost. No blending. No hidden cross-subsidy. Just transparency — which is exactly why processors who can't compete on price prefer you don't know about it.
This guide explains every layer of the system, shows you how to read your statement, and gives you the math to know instantly whether you're overpaying.
Interchange is the fee paid by a merchant's bank (acquirer) to a cardholder's bank (issuer) on every card transaction. It is set by Visa and Mastercard, published publicly, and non-negotiable. It varies by card type, authentication method, and merchant category.
Interchange-plus pricing (IC+) is a payment processing model where the merchant pays interchange at cost, plus a fixed processor markup. The merchant can see every component of their fee. This contrasts with flat-rate pricing, where all costs are blended into one opaque rate.
Effective rate is the total processing fees paid in a month divided by total card volume, expressed as a percentage. It is the single most useful number for comparing processors. Formula: Total fees ÷ Total volume × 100 = Effective rate %.
The Three Costs Inside Every Card Transaction
Every time a customer taps their card, three separate fees are collected. They happen invisibly, in milliseconds. Understanding each one is the foundation of understanding your processing costs.
1. Interchange — The Biggest Cost, Set by Visa and Mastercard
Interchange is the fee paid to the bank that issued the card — the cardholder's bank. Visa and Mastercard set these rates. Your processor has zero control over them. They're published, non-negotiable, and passed through to every merchant in the payment chain.
Interchange isn't one rate — it's a grid of hundreds of rates that vary based on:
- Card type: Debit cards have much lower interchange than credit cards. Consumer Visa averages roughly 1.5–1.7%. Premium travel rewards Visa can hit 2.1–2.4%.
- How the card is presented: Chip-and-PIN (lowest risk, lowest rate) vs. tap vs. keyed-in (highest risk, highest rate).
- Your merchant category code (MCC): Grocery stores pay lower interchange than restaurants. Government entities pay near-zero.
- Transaction size: Some interchange categories have minimum fees that make very small transactions proportionally expensive.
2. Assessment Fees — Charged by the Card Networks
Visa and Mastercard also charge their own network fee on top of interchange. This is how the networks themselves make money. Assessment fees are small — typically 0.10–0.15% — but they apply to every transaction and are also non-negotiable.
3. Processor Markup — The Only Negotiable Cost
This is what your processor charges for their services: authorization technology, fraud screening, customer support, settlement infrastructure, and profit margin. This is the only component you can negotiate. On flat-rate pricing, you can't see it at all.
Flat-Rate Pricing: What's Actually Happening
Flat-rate processors like Square, Stripe, and PayPal charge one blended rate for all transactions — typically 2.6–2.9% in Canada. Here's the mechanism that makes this profitable for them:
They collect the same rate whether you're processing a basic Visa debit (interchange ≈ 0.5%) or a premium Visa Infinite travel card (interchange ≈ 2.2%). The difference flows to the processor as margin.
On a month where your customers use a lot of debit cards, you subsidize the processor. On a month with heavy credit card use, the margin compresses — and the processor's model still works because debit-heavy months average it out across millions of merchants.
How Interchange-Plus Actually Works
On an interchange-plus (IC+) statement, your rate is expressed as:
What this means in practice: when a customer pays with a no-frills Visa Debit, you pay a very low interchange rate. When they pay with a premium rewards Visa Infinite, you pay a higher interchange rate. In both cases, your processor takes exactly the same markup — and you see exactly what each card type costs.
This matters for three reasons:
- You can actually manage your costs. If you see that rewards cards are expensive, you can encourage debit, offer a cash discount, or enable surcharging to recover the difference.
- You can benchmark your processor. Because interchange is publicly published, you can verify your statement and know your markup to the basis point.
- Your costs scale fairly with volume. As you process more, your markup component can be renegotiated down. On flat rate, high volume just means a high bill.
Reading Your Statement: The Numbers That Matter
Most merchant statements are designed to obscure, not illuminate. Here's what to look for — and what the numbers actually mean.
On an interchange-plus statement, you should see:
- A line-by-line breakdown of interchange by card type (Visa Consumer Credit, Visa Infinite, MC World Elite, Interac, etc.)
- Separate assessment fee line items for Visa and Mastercard
- Your processor markup, shown as a fixed percentage plus per-transaction fee
- Your effective rate (total fees ÷ total volume) — this is your real number
On a flat-rate statement, you typically see:
- One rate applied to all transactions
- No breakdown by card type
- No visibility into what interchange you actually paid
- No way to know if the rate is fair
How to Calculate Your Effective Rate
Do this calculation with your last three statements. If you're on flat rate, compare that effective rate to 1.5–1.8% — the typical IC+ range for brick-and-mortar Canadian merchants. The gap is what you're leaving on the table every month.
IC+ vs. Flat Rate: Side-by-Side
| Feature | Flat Rate (Square/Stripe) | Interchange-Plus (Grandco) |
|---|---|---|
| Transparency | Bundled — costs hidden | Full line-item breakdown |
| Debit card cost | Same as credit — you overpay | Lower rate — you save |
| Rewards card cost | Blended — average | Higher — but you can see it |
| Can you negotiate? | No — take it or leave it | Yes — markup is negotiable |
| Can you benchmark it? | No — no reference point | Yes — interchange is public |
| Surcharge compatible? | Poor — opaque cost basis | Yes — exact cost is known |
| Best for low volume | Yes — simple for <$5K/mo | Less advantage below $5K |
| Best for $10K+/month | No — you overpay at scale | Yes — savings compound |
| Statement clarity | Very simple — one number | Detailed — but readable |
| Monthly fee | Usually none | Platform fee applies |
The Surcharge Connection: Why IC+ Makes Cost Recovery Precise
Since October 2022, Canadian merchants can legally surcharge credit card transactions up to 2.4%. This changes the math significantly — and it works best on interchange-plus pricing.
Here's why: to recover your processing costs through surcharging, you need to know your actual cost. On IC+ pricing, you know exactly what each credit card transaction costs you. You can set a surcharge that precisely covers those costs — making credit card acceptance genuinely cost-neutral.
On flat-rate pricing, you're guessing. Surcharge too much and you're pocketing margin (which can create compliance issues). Surcharge too little and you're still subsidizing card costs.
Grandco enables and automates surcharging by default, with terminal-level disclosure built into the POS software. The surcharge is calculated, disclosed, and itemized automatically — no manual configuration required.
When Flat Rate Actually Makes Sense
Interchange-plus isn't always the right answer. Flat rate wins in these specific situations:
- Very low volume (<$3,000/month): Platform fees and per-transaction minimums can make IC+ more expensive at the lowest volumes. Square's simplicity is genuinely better here.
- Highly unpredictable or seasonal volume: If you process $50K in December and $2K in July, a fixed monthly fee is harder to justify in slow months.
- Pure e-commerce with mostly premium cards: If most of your customers use travel rewards cards, the interchange gap narrows and the simplicity of flat rate has more value.
For the vast majority of Canadian brick-and-mortar businesses processing over $10,000/month — restaurants, retail, health and wellness, trades and services — interchange-plus wins, often by a wide margin.
How to Switch Without Disruption
The practical objection to switching processors is disruption: retraining staff, new hardware, re-entering business banking details, potential downtime during the transition. These concerns are legitimate. Here's what a smooth switch actually looks like:
- Hardware: Grandco ships pre-configured terminals. Plug in, activate, done. No reprogramming of existing equipment.
- Onboarding timeline: Approval typically takes 3–5 business days. Most merchants are live within a week of submitting their application.
- Overlap period: Run both systems for a week during transition. This eliminates downtime risk entirely.
- Data migration: Your transaction history stays with your old processor. Your CRM data in Grandco is fresh — and Grandco's CRM is far more capable than whatever your old processor's dashboard offered.
- No early termination fees from Grandco: There are no contracts and no exit penalties. If you want to leave, you leave. Month-to-month, always.
The Bottom Line
Interchange-plus pricing isn't a gimmick — it's simply the structure that lets you see exactly what payment processing costs and pay only what it costs. Flat-rate pricing is a convenience product that works in the processor's favour at any meaningful volume.
The math is simple: if your effective rate on flat-rate pricing is above 2.0% and you process mostly in-person transactions, you are very likely leaving $100–500/month on the table. Add surcharging on top of IC+ pricing and that number becomes irrelevant — your net cost approaches zero.
Run your last three months of statements through the effective rate calculation above. If the gap between what you're paying and 1.6% is more than you'd spend on a platform subscription, the switch pays for itself from day one.
See Exactly What You'd Pay with Grandco
Our pricing calculator shows your interchange-plus rate, monthly savings vs. flat rate, and net cost after surcharging — in under 60 seconds.
Run Your Numbers Free →