Credit Card Processing With No Monthly Fee: Is It Worth It for a Small Business?

By Alexandra Sheehan

Credit card processing fees are a necessary evil. Today’s small businesses need to be able to accommodate multiple payment methods — credit cards included — but the added costs that come with it can be scary. Not to mention confusing. 

Percentages, transaction types, chargebacks, hidden fees. There’s a lot to think about when choosing a credit card processor. And while you want to find the most affordable option, the cheapest isn’t always equipped to meet your business needs. 

Monthly membership pricing for credit card processing is one straightforward and often cost-effective way to process transactions and keep more of your profits. 

What Is a Monthly Fee for Credit Card Processing?

Monthly fees are charged when credit card processors have a subscription- or membership-based pricing model. Merchants pay a flat rate each month, in addition to a per-transaction fee — this is different from interchange plus pricing where merchants pay a percentage of each transaction. 

When a processor charges a monthly fee, they’re not taking a cut from your profits. Instead, they make money from subscription fees, so they don’t need to dig into the money from each transaction. This pricing model is also more predictable. 

What Are the Other Credit Card Processing Pricing Structures?

Credit card processing fees depend on a number of factors, some controllable by processors and some out of their hands. There are three institutions that place a fee on processing: 

1. Credit card company: the bank that issues the card to the cardholder (Capital One, Bank of America, etc.) 
2. Credit card network: the companies that partner with credit card companies to provide the cards (Visa, Mastercard, etc.)
3. Payment processor: the company that administers credit card transactions (Payment Depot, for example)

Credit card companies charge interchange fees, credit card networks charge assessment fees, and payment processors charge a markup (that’s how they make money). 

Note: Processors that charge a monthly membership fee don’t place a markup on each transaction. Instead, they make a profit through recurring membership fees. 

The average credit card processing fees for each credit card network are as follows: 

• American Express: 2.5%–3.5%
• Discover: 1.56%–2.3%
• Mastercard: 1.55%–2.6%
• Visa: 1.43%–2.4%

Now, let’s go over the other payment structures processors use: 

Tiered

With tiered pricing for credit card processing (bundled pricing), merchants pay different fees for different transaction types. Processors will categorize each transaction as qualified, mid-qualified, or non-qualified. These classifications are unregulated and made up by processors themselves, so they have the freedom to manipulate and categorize transactions as they see fit. Often, they’ll work to maximize their profitability — harming the merchant’s bottom line. 

Flat Rate

Flat rate pricing (blended or fixed pricing) is when merchants pay a single fee for every single credit card transaction, no matter how much it’s for or the type of transaction it is. While this is usually a percentage, some processors will apply an additional flat fee (this is also known as interchange plus). 

Flat rate pricing is pricey, unless you have a low average order value. 

Interchange Plus

Interchange plus pricing for credit card processing is when processors apply the card network’s interchange fee plus their own markup. This is typically applied as a percentage, though some processors will do a flat number. This pricing structure makes it difficult to predict and understand credit card processing expenses. 

Is No Monthly Fee the Cheapest Way to Go?

The cheapest credit card processing pricing structure really depends on the nature of your business and what kinds of transactions you typically run. While monthly membership fees are predictable, there are times when it’s cheaper to opt for an alternative pricing structure. 

Let’s break down the pros and cons: 

The Argument Against Monthly Fees

Monthly fees can be considered an unnecessary expense, especially if you run a seasonal business and have minimal transactions for given time periods. Other pricing structures allow you to pay for only what you use, not what you might use. 

Monthly fees also don’t eradicate additional credit card processing expenses. For example, you might have to hit a minimum monthly transaction volume or pay an additional per-transaction fee each time you accept a card payment. 

Additionally, monthly memberships may require a minimum contract commitment (though keep in mind that processors with other pricing structures may do the same).

The Argument for Monthly Fees

While monthly membership fees can be pricey if you process minimal transactions, there are many benefits for most small businesses. For one, your credit card processing expenses are predictable. This makes planning easier. 

But aside from that, membership pricing can actually be a cheaper option. If you crunch the numbers, you’ll likely find that membership pricing will cost less than a tiered structure.

What’s more, membership pricing puts control in the hands of the merchant. Rather than being subjected to high fees for non-qualified transactions — a classification set and controlled by processing companies, which they can change at any time — membership pricing keeps everything the same. Processors have a harder time sneaking in qualified rates and other hidden fees.

Other Credit Card Processing Fees

Credit card processing comes with more than just transaction or monthly subscription fees. There are other expenses — some justified, others not — that can come along with it: 

• Setup: Some processors charge fees to set up a new account. 
• Installation: Processors might also charge an installation fee, for software and/or hardware. In some cases, this will be rolled into a single setup fee. 
• Hardware: You might need to purchase a card reader to use with your processor. 
• Cancellation: If you’re locked into a contract, you might have to pay an extra fee to cancel early. 
• Statement fee: Processors like to sneak in extra fees for sending your monthly statement. 
• Terminal lease: If you lease a credit card terminal or other equipment, you’ll likely have to pay an ongoing fee for this. 
• IRS reporting: Also known as an IRS regulatory fee or IRS filing fee, this is when the processor charges a merchant to reimburse them for costs associated with filing the 1099-K form with the IRS. 
• PCI compliance: When a processor charges a PCI compliance fee, ask what extra security features and benefits come along with that. Otherwise, negotiate it out. 
• Customer support: Some processors charge extra for access to or upgraded customer support. 
• Chargebacks: Some processors may apply extra fees if you face any chargebacks. 

When shopping around for a credit card processing company, don’t be afraid to ask about these fees and if you’ll be responsible for paying them. Many processors try to sneak in additional costs — membership models are typically more transparent and upfront about what to expect. 

Is It Worth It for Your Business?

The best credit card processor comes down to your unique business needs. In many cases, a monthly membership model is the best way to go. It offers transparency, predictability, and affordability. 

With Payment Depot’s monthly membership, merchants save an average of 40% on credit card processing expenses. Members never have to negotiate better rates because we never charge anything on top of wholesale. Instead, you get the lowest possible wholesale rates every time.