What is Flat-Rate Credit Card Processing?

TJ Markland


Flat-rate credit card processing is ultimately a trade-off: a simple, but very expensive rate, per transaction, offered in exchange for the convenience of easily calculating (only some of) your costs.

Flat-rate credit card processing is one of the more popular pricing models used by businesses due to its simplicity. Here’s why: No matter what type of card, transaction, or security feature used, you only pay a flat rate (ex. 2.7 – 2.9% + a fee per transaction). Sounds good, right? Not if you understand the actual cost of the transaction the processing company pays is much, much lower on average than what they are charging you. In all truth, flat-rate credit card processing is more convenient (and profitable) for the company through which you’re processing payments than it is for you as a business owner.

Why People Choose Flat-Rate Pricing

The lure of flat-rate pricing is purely one of simplicity and convenience. Although simple may not always be the most cost-effective, some business owners generally are willing to trade additional costs because of the amount of value they have placed on overall simplicity. At the end of the day, the flat rate pricing structure is certainly just that – it’s simple. This structure alleviates the noise of all the interchange categories per transaction by assigning one rate to every single card type, no matter how the card is run.

Business owners choose flat-rate pricing with the hope that they will be able to calculate their monthly fees for each transaction easily. This is only the case, sometimes, and only with certain companies. The ones that require you to pay a flat-rate only do so because the rate you pay is often set to the highest possible, average transaction cost for the processor. The intention of this model is to ensure that no matter what interchange category a transaction falls under, the processor will be able to cover their cost and, on average, much more. Unless you are set up with a subscription flat-rate pricing model, the processor will not disclose their actual cost per transaction (interchange rate), leaving you in the dark.

Let’s call it what it is… Simplicity Overpriced

Each time you run a card transaction as a business owner, you are paying three main fees. The first is to the bank who issued the card to your customer. We call this entity the issuing bank. The second is to one of the major brands (VISA, Mastercard, American Express, Discover, JCB, etc). The first two are fixed costs established by the card brands and issuing banks that every business has to pay. These fees and the level of risk pre-determined for each card type are what comprise interchange [link to further down in the article] categories and their rates. The last fee is the markup or profit the processor receives for rendering processing services and support for your business.

See VISA and Mastercard’s interchange guidelines and fee structures here:
VISA Interchange Fees
Mastercard Interchange Fees

Here’s a very basic example: According to standard interchange rates, a regulated debit card transaction ran in-store (card present), can have an interchange cost of 0.05% + $0.21 per transaction, depending on which card brand is used. With flat-rate pricing, the cost to the business could be 2.7% + $0.30 a transaction. For this example, if the transaction is $100, the actual interchange cost would be $0.26 or 0.26% for this transaction. Now let’s consider what a flat-rate processor would charge you for the actual transaction. Using the same example, a $100 transaction at a flat-rate of 2.7% + $0.30 per transaction would cost you $3 or 3%. Do the math. This would mean that the processor is charging you $2.74 for a transaction that only cost them $0.26 in interchange fees. Is that difference worth the convenience of budgeting your statements each month? Are you willing to pay that much for simplicity? Here’s our take: Its simplicity, overpriced.

Interchange Plus is Better

What if you only had to pay a small, fixed percentage for every transaction? Enter the Interchange Plus pricing model. In this model, processors like us at Rev19, pass the interchange costs directly through to you, the business, while adding the same percentage of margin to each of those costs. For example, if you were priced at an interchange plus rate of  0.30% plus $0.10 per transaction, that cost would be added to the interchange cost for every transaction. Let’s go back to the $100 example. Let’s say a customer makes a $100 purchase with a regulated debit card again and pays for it at your card terminal (card present). With a standard assigned interchange rate of 0.05% + $0.21 per transaction, the interchange fees would again only be $0.26 or 0.26%. According to the previously mentioned interchange plus rate, you would only be charged $0.40 on this $100 transaction. Yes, this means you would save $2.34 per $100 transaction by switching from a flat-rate processing company like Square, PayPal, Stripe, etc to a company that offers wholesale or (discount) interchange plus rates with no hidden fees.

Start Saving Today

If you’re a business owner and are stuck with a flat-rate processor, find one who offers interchange plus pricing. There are several payment companies that will offer you a much lower, wholesale price per transaction for your business. Simplicity works if it also allows you to grow your business. Interchange plus provides cost savings that will allow you to grow your business much faster.
If you’re looking for an opportunity to get a free savings analysis to determine how much the interchange plus pricing model could help your cash flow, fill out the form below and we’ll reach out to you so you can start saving today.

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