Flat Rate Credit Card Processing: What Merchants Need to Know

When it comes to credit card processing rates, your options can be a little overwhelming and a lot to process. There is flat-rate pricing, membership pricing, tiered pricing and a range of other options that merchants need to consider. You’re tasked with figuring out the best processing rates, fees, and contract terms, and which options are going to support business growth. 

There’s a lot to think about, and in this article, we want to hone into one credit card processing option that is growing in popularity — flat-rate credit card processing. 

What is Flat Rate Credit Card Processing?

Flat rate credit card processing is an attractive option for many because the most frustrating part of accepting credit card payments is figuring out exactly what these payments are actually going to cost the business. 

In the case of flat-rate processing, credit card processors have simplified this situation, setting out fixed, flat-rate pricing that allows merchants to see clearly and predict accurately what their credit card processing costs are going to be. 

The most common type of flat-rate processing in the market today is where the processor takes a specific percentage from the volume of transactions. 

Average Flat Rate Credit Card Processing Fees

Speaking of which, flat-rate credit card processing fees are, as of October 2019, typically around 2.75 percent to 2.9 percent for swiped transactions. In some cases, there may also be a per-transaction fee of around 20-30 cents per transaction. 

Often marketed as a competitive solution with no unwanted surprises, flat-rate credit card processing tends to deliver on the latter, but less so on the former. 

Flat rate credit card processing definitely makes calculating your fees nice and predictable, but by the nature of how credit card processing works, it is not really possible for a credit card processor to give you the best rate at a flat fee and remain competitive (or in business). 

They can offer you a competitive rate in comparison to other flat-rate providers, but not so much in comparison to all other credit card processing options. 

To understand why let’s have a quick look at how credit card processing actually works

Credit Card Processing 101

Whenever a credit card transaction is completed through your business, your credit card processor has to pay interchange fees to the issuing bank — the bank that issued the card that was just used in this transaction. 

What those fees are will change all the time based on a variety of factors. Different issuing banks have different interchange rates. Rates change depending on the type of card used — debit or credit. The type of transaction — online or in-store. Even the nature of the item purchased, as well as many other variables. 

On top of the interchange rates, there are minimal network fees. Lastly, there’s the markup fee which is where your processor makes their margin. 

In most cases, it is the interchange rates that induce headaches and make it hard for merchants to predict the costs of their services. This is why flat-rate credit card processing is so popular. 

Flat-rate pricing bundles up the various fees of credit card processing, including the interchange rates, and presents merchants with an easy to understand flat rate. This makes statements much easier to understand. But often (not all the time) the pricing structure leads to higher than necessary costs. 

Is Flat Rate Processing Always the Expensive Option?

The short answer is no, not always. But flat rates are typically sitting that high end of processing rates. 

Why? To create flat rates that are going to cover interchange costs and the processor’s markup, merchant services providers must set these rates at the high end of the scale to account for any high percentages that may come through via the interchange rates. This means that, in many cases, merchants pay more than is necessary. 

Flat Rate Pros and Cons

With all credit card processing options, are the pros and cons and these factors are different for every business. What may be a pro for one business is not a need for another, and what may be a con to some is a fair trade-off to others. 

Flat Rate Pros

  • Pay the same amount for each sale
  • Keep costs predictable so that it’s easier to anticipate monthly credit card processing fees
  • Most flat-fee models don’t charge a monthly account fee.

Quite simply, the benefit of flat-rate pricing is that it is predictable and therefore, easy to monitor. 

Flat Rate Cons

  • Costs are usually more expensive on a per-transaction basis
  • Costs are always more expensive for businesses with high transaction volumes.

Because of the way flat-rate pricing is bundled, it is usually going to be more expensive per transaction. This makes it an unadvisable option for businesses which process a high number of credit card transactions.  

That said, it could be the least expensive option overall for very small or seasonal businesses. This is because it doesn’t charge monthly fees, only the per-transaction fees — which in the case of very small businesses, are minimal.

Flat Rate Pricing Alternatives

There are many options to consider, and ultimately it will depend on what best suits your business, but here are a few common options to review:

Membership or subscription pricing

Subscription or membership flat-rate pricing is where the processor’s markup is applied as a flat monthly fee and per-transaction fee, rather than the percentage of sales that defines the flat-rate processing we’ve been describing above. 

In this model, the payment processor doesn’t take a cut out of your sales. Companies that use subscriptions, like Payment Depot, make money from merchant subscription fees. 

You, the merchant would pay the exact interchange fees, in addition to a flat monthly or annual fee to the processor. This is a more honest option where processor fees are transparent. 

Interchange Plus

Interchange plus pricing breaks down the charges that go to the issuing bank and credit card associations, which in turn allows you to see what markup is being charged by the processor. 

With an interchange-plus option, it is easy to assess whether you’re with the best credit card processor or not, and it’s easy to see that you’re getting the best rates. 

The only challenge is that with all of the transparency, comes a complex statement that can be hard to read. However, as far as downsides go, this one is much better than paying unnecessary fees.

Tiered

Tiered pricing allows the credit card processor to group various interchange fees into three or more general pricing tiers. Much like flat-rate processing, the benefit of tiered pricing is that it simplifies your processing statement so it’s easier to read. 

BUT, tiered pricing is almost always a more expensive option, and companies that use this model are known to implement less-than-ethical business practices. Do yourself a favor and stay away from tiered pricing

Final words

Flat-rate credit card processing has its benefits and certainly plays a positive role in the processing market. However, businesses that put through more than just a few transactions each month need to be wary or at least aware that flat-rate processing is likely costing more than necessary.