Credit Card Processing With No Monthly Fee: Is It Worth It for a Small Business?
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. Ultimately, you will have to decide which processing system is right for you. Luckily, here at Payment Depot we offer transparent interchange plus pricing and our partners at Stax offer membership-style pricing. We can quote out each method based on your needs to help you determine which route would be best for your business.
When a processor charges a monthly fee, they’re not taking a percentage from your profits. Instead, they make money from subscription fees. This pricing model can also be seen as 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:
- Credit card company: the bank that issues the card to the cardholder (Capital One, Bank of America, etc.)
- Credit card network: the companies that partner with credit card companies to provide the cards (Visa, Mastercard, etc.)
- 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 or a recurring membership fee (that’s how they make money).
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. Payment Depot offers a transparent interchange plus method that helps low volume businesses get the best value when it comes to payment processing.
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 predictability and affordability.
With Payment Depot’s transparent interchange plus pricing model, merchants save up to 40% on credit card processing. Contact us today to see what type of credit card processing would be best for your business.
Quick FAQs about Credit Card Processing Fees
Q: What are credit card processing fees?
Credit card processing fees are the costs incurred by businesses when they accept credit card payments. These fees are charged by three institutions: the credit card company, the credit card network, and the payment processor. The fees vary depending on several factors and are usually a combination of interchange fees, assessment fees, and a markup from the payment processor.
Q: What is a monthly membership pricing model for credit card processing?
In a monthly membership pricing model, merchants pay a flat rate each month, in addition to a per-transaction fee. This model is different from interchange plus pricing where merchants pay a percentage of each transaction. The processor makes money from subscription fees instead of taking a cut from each transaction, making this model more predictable.
Q: What are the average credit card processing fees for each credit card network?
The average credit card processing fees are as follows: American Express: 2.5%–3.5%, Discover: 1.56%–2.3%, Mastercard: 1.55%–2.6%, and Visa: 1.43%–2.4%.
Q: What are the other payment structures for credit card processing?
Other payment structures include tiered pricing (also known as bundled pricing), flat rate pricing (also known as blended or fixed pricing), and interchange plus pricing. The choice of pricing structure depends on the nature of your business and the types of transactions you typically run.
Q: What are the pros and cons of monthly membership fees for credit card processing?
Monthly membership fees can be considered an unnecessary expense for businesses with minimal transactions, especially seasonal businesses. Additionally, these fees don’t eradicate additional credit card processing expenses such as minimum monthly transaction volumes or per-transaction fees. On the positive side, monthly membership fees make credit card processing expenses predictable and often less expensive than tiered structures. They also give merchants more control over their costs.
Q: What are the other expenses associated with credit card processing?
Besides transaction or monthly subscription fees, other expenses may include setup fees, installation fees, hardware costs, cancellation fees, statement fees, terminal lease fees, IRS reporting fees, PCI compliance fees, customer support fees, and chargeback fees.
Q: What factors should I consider when choosing a credit card processor?
When choosing a credit card processor, consider factors like the pricing structure, predictability of costs, transparency of fees, and the specific needs of your business. It’s also crucial to ask about any additional fees and ensure that the processor is transparent about their charges.
Q: What is the benefit of using Payment Depot’s interchange plus pricing model?
With Payment Depot’s transparent interchange plus pricing model, merchants can save on credit card processing expenses. This model ensures that merchants get the best value for their payment processing dollars, especially for businesses with low transaction volumes.