Pass-through pricing in card processing means the processor charges you the actual third-party costs of each transaction, such as interchange and network fees, and adds its own disclosed markup on top. You see two layers: what the card networks and issuing banks charge, and what your processor charges. This guide explains how that model works, how it compares with flat rate and tiered pricing, what "pass-through" does and does not guarantee, and how to check a proposal line by line.
A note on terms: "pass-through pricing" also appears in pharmacy benefit management and government contracting. Those are different arrangements. Here we cover merchant payment processing in the United States.
TL;DR
- Pass-through pricing separates third-party costs (interchange, network assessments) from the processor's markup, so each layer is visible on your statement.
- Pass-through does not mean "no fees." Interchange and network fees still exist. The question is whether they are charged at cost and whether the markup is disclosed.
- Flat rate is simple and predictable. Interchange-plus and pass-through models are more transparent and often reward higher volume, debit-heavy mixes and card-present sales.
- Tiered pricing groups transactions into buckets, which makes it the hardest of the common models to audit.
- PaySec Network Offset Pricing passes through true wholesale interchange rates, with no hidden fees, no minimums and no long-term contracts.
Table of Contents
- What pass-through pricing means for a merchant
- Pass-through vs. flat rate vs. interchange-plus vs. tiered
- What "pass-through" does not guarantee
- How to read a statement under a pass-through model
- Which pricing model fits which business
- Regulation worth knowing: debit interchange
- Not to be confused: pass-through in pharmacy benefits
- Our perspective
- See your own numbers with PaySec
- Checklist before you sign any processing agreement
- FAQ
- Sources
What pass-through pricing means for a merchant
Every card payment carries costs that the processor does not set. The issuing bank receives an interchange fee. The card network charges assessments. The processor adds its own charge for authorization, settlement, support and risk. In a pass-through model, the first two are billed at their actual amounts and the third is stated separately.
Bank of America's guide to credit card processing fees describes the closest standard version, interchange-plus: the network-set interchange fee plus the provider's fee, with the components visible. Flat rate, by contrast, combines costs into one fixed rate.
The practical result is that you can answer a simple question: what did this transaction cost the networks, and what did I pay my processor on top?
Why interchange varies
Interchange is not one number. U.S. card networks publish many interchange categories, so the fee on a given sale depends on factors such as card type, issuer, how the card was accepted (swipe, tap, keyed or online), the merchant's industry and the risk profile. Bank of America notes that interchange-plus costs can vary transaction by transaction for this reason.
That variability is the reason pass-through pricing rewards a clean mix. A restaurant with mostly card-present debit and consumer credit sales will see different costs than a B2B software company charging corporate cards online.
Interchange is not the whole merchant discount
The total you pay is larger than interchange. The Congressional Research Service explains in its overview of debit interchange regulation that interchange is only one component of the merchant discount, the total charge a merchant pays for card acceptance. The rest goes to networks and to the processor.
This matters when you read a proposal. Interchange is one line. You also need the network assessments, the processor markup, and any gateway, statement or incidental charges. For restaurants, tip handling adds another wrinkle. A guide to tip-related chargebacks and POS fixes shows how adjustments after authorization can affect what a restaurant ends up paying and recovering.
For a plain-language walkthrough of the full charge, see our explainer on the merchant discount rate.
Pass-through vs. flat rate vs. interchange-plus vs. tiered
The four models differ in how much of the cost structure you can see and how predictable the monthly bill is.
| Model | How you are charged | Visibility | Predictability | Typically fits |
|---|---|---|---|---|
| Flat rate | One fixed percentage (often plus a per-transaction fee) on every sale | Low: costs are blended | High | Very low volume, simple budgeting needs |
| Tiered | Transactions grouped into buckets (for example qualified, mid-qualified, non-qualified) with a rate per bucket | Low: the processor decides what lands in each bucket | Medium | Rarely the best fit for a merchant who wants to audit costs |
| Interchange-plus | Actual interchange plus a stated markup | High | Medium: varies with card mix | Growing and mid-to-high volume merchants |
| Pass-through / Network Offset | Actual wholesale interchange and network costs passed through, with the processor's value shown separately | High | Medium to high with good reporting | Merchants who want true cost visibility and savings |
Flat rate: pros and cons
Flat rate pricing is easy to understand. You know the percentage before the first sale, and the bill is simple to forecast. Bank of America says flat-rate pricing may suit low-volume businesses that prioritize budgeting simplicity.
The trade-off is that one rate must cover the most expensive card in your mix, so low-cost transactions such as debit carry the same charge as premium rewards cards. Higher-volume and mixed-channel businesses are the ones that gain from comparing detailed effective costs.
Tiered pricing: why it is hard to audit
Tiered pricing sorts transactions into qualified, mid-qualified and non-qualified buckets. The processor defines the rules for each bucket, and the same sale can fall into a more expensive tier depending on how it was taken. Because the buckets do not map directly to interchange categories, you cannot easily see which part of a charge is a pass-through and which part is markup. If you are comparing tiered with interchange-plus, ask for the tier definitions in writing and a statement analysis against actual interchange.
Interchange-plus: the transparent baseline
Interchange-plus shows the cost per transaction and a fixed markup. It is generally more transparent and can be more cost-effective than flat rate, according to Bank of America. Our checklist on calculating interchange-plus pricing and negotiating the markup walks through the math.
Network Offset: pass-through with the markup built differently
PaySec's Network Offset Pricing passes through true wholesale interchange rates and eliminates flat-rate markups and hidden fees. Merchants can offer customers flexible payment options while retaining full revenue. Our clients typically save 30-60% compared with major processors. To go deeper, read Network Offset Pricing explained or our side-by-side post, Flat-Rate vs. Interchange-Plus vs. Network Offset Pricing.
What "pass-through" does not guarantee
The label is useful only when the agreement defines it. Three points to check.
1. Pass-through is not the same as no fees. Interchange and network assessments remain real third-party costs. The processor's value appears as a disclosed markup. Any proposal that claims zero cost needs a clear explanation of who funds the underlying costs and how.
2. Interchange is only one slice. U.S. government analyses stress that interchange is one part of the merchant discount. Ask for a complete fee map instead of assuming a "pass-through" label means every payment cost is charged at cost.
3. Definitions drive the outcome. Contracting guidance, including the USPS description of its pass-through pricing program, shows the discipline a good clause needs: identify the underlying third-party cost, define how it is allocated, and state how credits, rebates, refunds and other adjustments are handled. For a merchant agreement, request the same: define pass-through costs, processor markup, assessment treatment, reporting, adjustments and the conditions for any other fee.
Other industries show the same pattern. An independent adviser's analysis of pass-through pricing in telecom contracts argues that a pass-through line can pick up margin in places a buyer rarely sees on first read. The lesson for card processing is simple: the label is a starting point, and the statement is the proof. That is why we publish our approach openly and pair it with detailed transaction reporting.
How to read a statement under a pass-through model
A valid comparison requires transaction-level data or a sufficiently detailed statement, not only the advertised percentage. Interchange varies by card type, issuer, transaction method, industry and risk. Use this process.
- Pull three recent statements. Use months that reflect your normal mix, plus your busiest month.
- Separate the layers. Group charges into interchange, network assessments, processor markup, authorization or gateway fees, and recurring or incidental fees.
- Compute your effective rate. Divide total fees by total card volume for each month.
- Segment by channel. Compare card-present, online, keyed and recurring transactions. Each has a different cost profile.
- Check the adjustments. Look at refunds, chargebacks and tip adjustments, and how each is billed.
- Ask for the same view from any proposal. The proposal should show interchange and markup separately for your own volume.
If your statement does not let you do step 2, that is itself the finding. Our post on seven hidden fees in a processing statement lists the lines that most often blur the picture.
A worked example with illustrative numbers
The figures below are invented to show the mechanics. They are not PaySec rates or a quote.
Suppose a merchant processes $100,000 in a month. Under a blended flat rate of 2.9% plus 30 cents, with 2,000 transactions, the fee is $2,900 plus $600, or $3,500, an effective rate of 3.5%.
Under an interchange-plus structure, imagine the actual interchange and network costs on the same volume come to $2,100 and the processor markup is $500 in total. The bill is $2,600, an effective rate of 2.6%. The difference comes from card mix: debit and standard consumer cards cost less than the blended rate assumes.
Now change the mix. If most of your volume is premium corporate cards, interchange rises and the gap narrows. That is why you test with your own statements. It is also why commercial cards deserve their own line in the analysis: for B2B merchants, enhanced data submission can matter, and we cover it under Enhanced Data Optimization in our merchant services.
Which pricing model fits which business
Card mix, channels and volume decide the answer. These are the patterns we see by sector.
Restaurants and restaurant chains
Most sales are card-present, many are debit, and tips are added after authorization. Pass-through pricing makes the cost of each of those categories visible, which helps multi-location operators compare locations on the same basis. Detailed reporting lets you see which location or day part carries the highest effective rate.
eCommerce
Online sales carry card-not-present interchange categories and usually a gateway charge. A pass-through structure lets you see that gateway line separately. Our eCommerce payment processing solution combines the gateway with fraud prevention.
SaaS and subscription businesses
Recurring charges are predictable in timing and amount, which makes effective-rate analysis straightforward. If you bill by subscription, look at recurring billing and how failed-payment retries are charged.
Healthcare practices
Pricing is only one decision. Payment processing, HIPAA and PCI DSS address different responsibilities: PCI DSS concerns payment-card data, and HIPAA concerns protected health information. CMS guidance on virtual credit cards and EFT shows that healthcare payment workflows also involve standardized EFT and remittance transactions. Keep patient health information out of payment fields, and evaluate tokenization, access controls, integrations and reporting separately from the rate. Your compliance officer or healthcare counsel should confirm your HIPAA obligations. PaySec supports PCI DSS Level 1 and SOC 2 compliance.
CBD and other high-risk retail
High-risk merchants often face opaque pricing and long contracts. The pass-through approach shows exactly where the markup sits, and PaySec offers fast approvals including high-risk verticals, with no long-term contracts.
Regulation worth knowing: debit interchange
Debit is the one area where the U.S. sets a cap. Under the Dodd-Frank Act, the FTC's plain-language guide for retailers describes a cap that began October 1, 2011, at 21 cents plus 0.05% of the transaction value for covered issuers, with a possible one-cent fraud-prevention adjustment. Exemptions apply.
Two points follow. The cap applies to covered large debit-card issuers, not to every issuer. And it covers interchange, not the full merchant discount your processor bills. Under flat rate, you do not see this benefit separately. Under a pass-through model, the lower regulated debit cost shows up in your statement. For tactics, see our post on lowering debit vs. credit fees.
Not to be confused: pass-through in pharmacy benefits
Search results for this phrase are dominated by pharmacy benefit managers (PBMs). There, pass-through pricing generally means the plan sponsor receives negotiated discounts and rebates and pays the PBM an administrative fee. Spread pricing is the difference between what the PBM pays a pharmacy and what the plan sponsor pays the PBM, as the Commonwealth Fund describes.
The parallel is instructive. Commonwealth Fund researchers note that removing retained rebates can shift compensation toward administrative fees or other revenue, so total compensation still has to be evaluated. In card processing, the equivalent habit is to review the total fee map, not one line.
Our perspective
We built PaySec around one idea: merchants should see what the networks charge and what we charge, and keep full revenue on each sale. That is the purpose of Network Offset Pricing.
We do not think the label is enough, and we do not ask merchants to take it on trust. Pass-through pricing has to come with reporting that makes it checkable. That is why every merchant gets detailed transaction reporting, and why our agreements carry no hidden fees, no minimums and no long-term contracts.
In our experience, the merchants who benefit most are the ones with real card volume across several channels: restaurant groups, eCommerce stores, SaaS and marketplace businesses, healthcare practices and CBD retailers. Our clients report savings of 30-60%, including a 42% reduction in processing costs. Savings depend on each merchant's mix, so we start by analyzing your statements.
Our advice for any proposal, ours included: ask for the interchange layer, the markup layer and every other charge in writing, and compare them against your own statements.
— PaySec Marketing Team
See your own numbers with PaySec
If you want pass-through pricing without contracts or minimums, review the Network Offset, Flat Rate and Custom Enterprise options. Terminal placement is available at 0 $ per month through Free Placement. For a full view of in-store, online, mobile, ACH and recurring payments, see PaySec merchant services. Or start with how Network Offset Pricing works.
Checklist before you sign any processing agreement
- Fee map: interchange, network assessments, markup, gateway, statement and incidental fees, each listed.
- Definition of pass-through: which third-party costs are passed at cost, and how adjustments, refunds and credits are treated.
- Reporting: transaction-level detail you can export and reconcile.
- Term: no long-term contract, or a clear exit.
- Compliance: PCI DSS level, tokenization, and how the setup fits your sector's rules.
- Fit: support for your channels, whether POS, online, mobile or recurring.
FAQ
What is pass-through pricing in payment processing?
It is a pricing structure where interchange and network costs are billed at their actual amounts and the processor's markup is stated separately. You can then see the cost of each layer. It does not remove those third-party costs.
Is interchange-plus the same as pass-through pricing?
They are close. Interchange-plus charges the network-set interchange fee plus the provider's fee, as Bank of America explains. Pass-through pricing is the broader idea, and Network Offset Pricing is PaySec's way of passing wholesale interchange through to merchants.
Is flat rate or interchange-plus better?
Flat rate is simpler and easier to forecast, which suits low-volume merchants. Interchange-plus and pass-through models give more visibility and often better economics for higher-volume or mixed-channel businesses. Compare effective rates on your own statements.
How does tiered pricing compare with interchange-plus?
Tiered pricing groups transactions into buckets the processor defines, so it is difficult to see the underlying cost. Interchange-plus shows the cost per transaction with a stated markup. Ask for tier definitions and a statement analysis if you are comparing the two.
Does pass-through pricing mean I pay no processing fees?
No. Interchange and network assessments remain third-party costs. Pass-through means those costs are shown at cost and the processor's charge is disclosed.
Sources
- Bank of America: What you need to know about credit card processing fees
- Congressional Research Service: Regulation of Debit Interchange Fees
- FTC: New Rules on Electronic Payments Lower Costs for Retailers
- USPS: Pass-Through Pricing
- CMS: Virtual Credit Cards and EFT Guidance Letter
- Commonwealth Fund: Role of Pharmacies in Making Drug Purchasing More Efficient
- Commonwealth Fund: Pharmacy Benefit Managers Practices, Controversies, What Lies Ahead
- TSA Advisory: TSA Pass-Through Pricing
Recommended
- Merchants: Cut Card Processing Fees With Network Offset Pricing
- Cut Processing Costs 30–60%: Gateway vs Processor for SMBs
- Flat-Rate vs. Interchange-Plus vs. Network Offset Pricing: Which Is Best for Your Business?
- How to Read Your Credit Card Processing Statement (And Find Out If You're Overpaying)