With a multitude of payment processing companies available, finding the right fit for your growing business can feel overwhelming. And the stakes are high. According to the 2025 Nilson Report, U.S. merchants paid a record $187.2 billion in card processing fees in recent years, or about $1.57 for every $100 accepted in card payments. With nearly $12 trillion in card purchase volume flowing through the system, even small differences in pricing models can significantly impact your margins.
When securing a payment processor, the question of whether a subscription or markup pricing plan is best for your business will inevitably arise.
So, what is the difference between a subscription-based payment processing plan and a markup pricing option? Each payment processing company comes with its own set of rates, fees, and contract terms. A merchant services provider that qualifies as a good deal for a small business might be too expensive for a larger one.
In this blog, we break down the difference between subscription vs. markup pricing — and which model makes the most sense for your business.
What is the best way to accept credit cards?
Using a merchant services provider instead of a bank can help you save hundreds of dollars a month in payment processing fees. Banks typically use a markup pricing model. They then contract out to a third-party merchant service provider to process transactions for them and charge you additional fees just to hand your business to someone else.
Merchant services providers offer additional pricing formats with the offer of better pricing for businesses wanting to accept credit card payments. Even with the perceived savings, many providers have their own markup model, meaning your business needs to pay close attention to smaller details to make sure you’re really getting the best payment rates.
How credit card processing pricing actually works
Understanding how credit card processing pricing works starts with knowing what happens every time you accept credit card payments. Whether you run a retail shop, an ecommerce store, or a subscription business that processes recurring billing, every transaction follows the same basic structure. A payment processor routes the transaction through payment gateways to the card networks and the customer’s bank account. Along the way, several transaction fees are applied.
The three components of every transaction fee
Every time you process payments, you’re paying for three things:
Interchange. This goes to the issuing bank that provided your customer’s credit card or debit cards.
Assessments. These are small fees charged by the card networks for using their payment system.
Processor markup. This is what your payment processing provider earns for facilitating payment processing, managing risk, fraud prevention, payment data security, and moving funds into your merchant account.
Whether you’re running one-time sales or subscription payment processing with automatic payments and recurring transactions, these three components exist in every pricing model.
What interchange really is (and why it’s non-negotiable)
Interchange is the base cost of accepting credit card payments. It’s set by the card networks and varies depending on factors like payment methods, whether the card was present, and risk level.
For example, a transaction made with digital wallets like Apple Pay or Google Pay may qualify differently than keyed-in payments. Interchange also differs for recurring payments, subscription renewals, or direct debit from bank accounts.
Because interchange is set by the networks, no payment processor can waive it. The only question is how transparently it’s passed through to you.
How processors make money on your transactions
Processors earn revenue through markups, monthly fees, or subscription credit card processing models. In traditional markup pricing, the processor adds a percentage on top of interchange for every transaction.
In subscription payment models, businesses pay a flat monthly fee in exchange for lower per-transaction markups. This approach is often attractive to high-volume and subscription-based businesses that manage subscriptions, accept recurring payments, and value predictable revenue streams.
Regardless of the model, understanding how your provider structures markup is key to controlling costs and protecting customer experience.
What is the average credit card transaction fee?
The fixed per-transaction fee (or dollar amount) is charged on top of the percentage fee. These fixed fees can range from $0.08 to $0.30, and they are part of the total cost. It’s important to consider that a processor who has a low rate may end up charging you just as much or more than another processor by charging a higher per-transaction fee.
This can be especially expensive for merchants with low average transaction size. There are also certain processors who do not charge any transaction fees, however, this typically comes with a higher markup percentage and additional hidden fees that end up offsetting any potential payment savings. This is why it’s important to evaluate processors based on the effective rate which accounts for all payment processing costs.
Flat rate
Flat-rate pricing is a model where the processor charges a single, predetermined percentage for all transactions, blending the interchange, assessments, and the processor’s markup into one easy number. Flat-rate models make each card payment type the same percentage.
This might seem like a good system at first, but the more payments you process, the more expensive it gets. This is especially true if you process a lot of cards with low interchange rates (like PIN-less debit transactions or standard non-rewards credit cards), as you pay the high fixed rate even when the underlying cost is near the minimum. These cards average an interchange around .5% – so 2.6% is an extremely large markup.
Tiered rate
By far one of the most expensive processing pricing models, tiered rates bundle different card payment types within set tiers and charges based on those qualifications. The important thing to remember with this model is that the tiers are arbitrary and determined by the provider. Your business should instead focus on “interchange plus” models such as those found in the flat rate/subscription realm.
While on the surface the rate may seem to look attractive and competitive, the reality is that your business is actually losing money. Providers offering tiered pricing models are focused on making the most profit for themselves, not the best savings for the merchant. The stated rate (e.g., 1.9%) includes the interchange, assessment, and processor markup. The lack of transparency comes from the processor controlling which transactions qualify for the low-cost tier.
Make sure to have a consultation to determine if a business is being charged a blended tiered rate on mark-up tiered rate.
Subscription
Often the best choice for merchants is subscription-based pricing models. A monthly membership is paid in exchange for the direct cost of interchange. This means that no matter how much you process, you only ever have to worry about the direct cost of the cards you’ve processed in addition to a flat membership.
There are a handful of other companies that use subscription-based pricing, but here at Stax, we offer the most transparent model with unlimited payment processing and absolutely no hidden fees.
What is a good rate for credit card processing?
So what is a good rate for credit card processing? Whether you’ve experienced percentage markups, tiered rates, or other programs designed to inflate profits for the payment processing vendor, there is a better option for your business. Checking your effective rate (the total processing fees divided by total sales volume on your payment processor’s statement) is one of the quickest ways to discover if you’re paying too much for your merchant account.
The high end of the average effective rate for many SMBs is around 2.75% – 3.25%. However, certain processors and transaction methods can end up charging costs of up to 5% through a combination of high rates, hidden fees, and expensive equipment and leases.
How to calculate your effective rate (with example)
If you want to understand what you’re truly paying for credit card processing, your effective rate is the number that matters most. It shows the total cost of payment processing as a percentage of your total sales volume, including transaction fees, monthly fees, and any additional charges tied to your merchant account.
For subscription-based businesses that process recurring payments, this is especially important. Whether you accept credit card payments, debit cards, digital wallets like Apple Pay or Google Pay, or even direct debit from bank accounts, your effective rate reveals how efficiently your payment system is operating.
Step-by-step effective rate formula
Here’s the simple formula:
Effective rate = (Total processing fees ÷ Total sales volume) × 100
Step 1: Add up all fees from your merchant statement. This includes interchange, assessments, processor markup, monthly fees, gateway fees, subscription payment processing costs, and any charges related to recurring billing or payment failures.
Step 2: Identify your total processed volume for the same billing cycle.
Step 3: Divide total fees by total sales volume.
Step 4: Multiply by 100 to convert it into a percentage.
This formula works whether you run one-time transactions or process subscription payments with automated billing and recurring transactions.
Example calculation for a $50,000/month merchant
Let’s say a subscription business processes $50,000 in credit card payments in one month.
Total fees (including transaction fees, payment gateway costs, and monthly subscription payment processing fees) equal $1,400.
$1,400 ÷ $50,000 = 0.028
0.028 × 100 = 2.8% effective rate
That 2.8% represents your true cost of payment processing work across all payment methods and billing frequency.
Final words
Credit card processing fees are likely to continue being a major expense. The solution is not more negotiation; it’s cost simplicity. Stax offers a transparent subscription model with 0% markup on direct-cost interchange. This completely removes the percentage guesswork and shields your profits from rising interchange and confusing markups, leaving you with zero hidden fees, zero percent markups, and zero cancellation fees.
Reach out to Stax for a consultation today.
