Flat-Rate Credit Card Processing: Pros, Cons, & Alternatives

Running a business is an expensive undertaking, but who knew that the process of accepting payments would end up being one of your business's most significant monthly expenses? Credit card processing fees can eat into your profits if you're not careful. That being said, choosing the right pricing model is the first step towards keeping these essential business costs down. 

There are various pricing models when it comes to credit card processing fees, and they are not one size fits all. Business owners are often attracted to flat-rate credit card processing due to its simplicity and convenience. But these things come with a price. To figure out if flat-rate credit card processing is suitable for your business, you must fully understand the nature of the beast, so let's dig in.

What is flat-rate credit card processing?

Flat-rate credit card processing, also known as flat-fee merchant services, is when a processing provider charges your business a flat rate for every card transaction rather than a variable fee based on specific factors.

With flat fee credit card processing, the only thing that may affect the rates is the risk of the type of transaction, such as keying in credit card information.

How does flat-fee credit card processing work?

To truly understand how flat-fee merchant services work, especially compared to other payment processing types, it's essential to know where these fees are going. First off, we have the interchange fee. This fee goes to the card's issuing bank. Then there is the assessment fee, which is paid to the card brand - Visa, MasterCard, Discover, or Amex. Last is the markup fee, which is the cost paid to the payment processing provider for their services.

That's a lot of fees, and on top of that, they can vary based on the card issuer, card type, transaction type, transaction risk, submitted data, merchant category code, and more. So you can see how a new or even seasoned business owner could get confused, which is exactly why flat-fee credit card processing has become so popular. 

Flat-rate credit card processing companies charge businesses a flat percentage of the net processing volume. Some processors will also charge a flat fee per transaction. This takes the guesswork off of business owners, makes processing costs easier to predict, and limits the need to monitor statements every month. The provider is essentially lumping in all the credit card fees plus their markup into one predictable and stable charge.

Credit card processing flat-rate example

Let’s look at an example. One of the lowest flat-rate transaction fees on the market is PayPal Zettle. Their current rates are as follows:

• Card-present transactions: 2.29% + $0.09 per transaction
• Manual entry transaction:  3.49% + $0.09 per transaction

Let's say your Tex-Mex fusion food truck ran $10,000 over 200 card-present transactions, along with another $500 in sales over 10 manual entry transactions. What would your total flat-rate merchant services costs be?

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$10,000 x 2.29% = $229

200 transactions x $0.09 = $18

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$500 x 3.49% = $17.45

10 transactions x $0.09 = $0.90

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Total = $265.35

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While this type of payment processing is straightforward to understand, you're paying for the simplicity and convenience. You are almost always paying over the established interchange costs. It's crucial to determine whether the extra costs are worth it for your company.

Average flat-fee credit card processing rates

Flat-rate credit card processor fees typically fall somewhere between 2.29% and 3.5%, plus 9 to 30 cents per transaction. Typically, the lower end is for in-person card transactions, such as chip or swipe transactions. The higher end usually corresponds with the more risky transactions, such as manual entry or online transactions. 

To put these rates into perspective, the average interchange rates currently range from 1.29% to 2.7%, plus a 10 to 22-cent transaction fee.

Benefits of flat-rate credit card processing

Flat-rate plans offer simplicity and predictability, making it easy to budget for your business expenses. Plus, with simple invoicing, you won’t have to scour billing to ensure you haven’t been overcharged. Let’s take a closer look at all of the benefits of flat-fee merchant services.

Simple pricing structure

Flat-rate credit card processing has a simpler pricing structure than others. With flat-rate pricing, there is only one fee, so it’s much easier to manage. There’s no guesswork to be done or complicated variable fees to understand. For this reason, flat-rate merchant services are often common for new businesses.

Easy to understand

The simple pricing structure also makes the flat-fee credit card process easy to understand. This can help businesses predict their monthly expenses, budget for the future, and save time on bookkeeping.

Great for small transactions

Flat-rate credit card processing makes the most sense for businesses that have small transactions or don't make a lot of their sales through credit cards.

Same rate across all cards

American Express tends to charge much higher rates, so many businesses decide not to accept these cards at all. However, customers want to choose how they pay, so accepting all card types is ideal. With a flat fee, you can take these elite cards without eating the cost.

Drawbacks to Flat-rate Credit Card Processing

As we mentioned, these benefits come at a cost to you. While flat-fee credit card processing makes sense for some, these drawbacks may outweigh the benefits depending on your business.

Higher fees

One of the primary drawbacks of flat-rate credit card processing is that it typically comes with higher fees than other pricing models. While the exact amount will vary depending on the processor, you can expect to pay around 2.5% – 3% per transaction. This is significantly higher than the average interchange rates.

Lack of transparency

Although flat-fee merchant services are easier to understand, the costs are not transparent. It's nearly impossible for you to determine what percentage of the fee goes towards interchange and assessment fees versus how much markup the processor is charging.

Not ideal for high-volume business

Flat-rate credit card processing is not ideal for businesses that process a high volume of transactions. This is because you'll be paying the same rate regardless of how many transactions have lower interchange rates. If your business processes a large number of small-value transactions, another pricing model may be a better option for you.

Not suited for scaling your business

While flat-rate merchant services may be ideal when you're just starting, they won't scale well as your business grows. Once you start running more transactions and higher processing volumes, you'll end up overspending on merchant fees or needing to change to a new payment processor.

Alternatives to flat-fee credit card processing

After reading through both the pros and cons of flat-fee merchant services, you may be wondering if there is an alternative more suited to your business needs. There are multiple different pricing models for merchant processing, and the key to deciding which is right for you is understanding your options and your organization's specific requirements.

Interchange plus

Some merchant services providers like Tidal Commerce offer the interchange plus pricing model. This model can save businesses of all sizes significant money when compared to flat-rate credit card processing. 

This pricing model charges businesses the exact interchange fee plus a small fixed margin. Since most cards processed actually have low interchange fees, you will more than likely save money with this pricing model. 

While the interchange plus pricing model overcomes many drawbacks of flat-rate credit card processing, you may still see similar benefits. For example, Tidal Commerce has straightforward and honest pricing plans, allowing business owners to understand exactly what they're spending on merchant services.

Tiered pricing

With tiered pricing, payments are placed into a category with a different rate for each tier. The tiers typically cover qualified, mid-qualified, and non-qualified, with rates going up, respectively.

Tiered pricing can be confusing for business owners because you can't see what the interchange rates are. In addition, processors may automatically route most charges into the mid-qualified or non-qualified tiers, which costs your business more money.

Flat-rate subscription

A flat-rate subscription involves charging merchants a flat monthly fee for payment processing. This is also called membership pricing and may be ideal for growing businesses with large processing volumes. Your organization will pay the exact interchange fee. The only markup is the monthly subscription fee, which allows for transparency in pricing.

Zero-fee processing

With zero fee processing, the name is a little misleading. There will always be fees when it comes to credit card processing, but this model passes those costs onto your customers, also known as surcharging. To do this, your terminals will be programmed to add a markup that covers processing fees. 

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It's important to note there are many laws regarding surcharges that vary by state. Many states have limits or regulations, and in some states, it is prohibited altogether. While this model may encourage people to use other forms of payment, it likely won't end up with happy customers. A better way to boost cash payments is through a cash discount program.

Cash discount

A cash discount program will automatically apply a discount for customers who wish to pay in cash. Merchant services providers like Tidal Commerce can seamlessly implement a cash discount program into processing software. Programs like these can lower merchants' monthly processing fees while saving customers money through cash payments.

Is flat-rate credit card processing right for you?

When it comes time to choose a merchant services provider and pricing model, there's no clear solution for every business. For some, paying for the convenience of flat-rate merchant services is worth the money. For others, the lower price of other options outweighs the benefits of a flat rate.

Flat-rate credit card processing is a great place for new businesses to start. Small businesses that don't often accept credit card payments may also benefit from the easy-to-understand model. However, any business that wants to leave room to grow and expand should consider the long-term significance. 

The interchange plus model, like the one offered by Tidal Commerce, is cost-effective for new, smaller businesses and large, established organizations alike. For a pricing model that will work with you as your business expands, flat-fee merchant services may not be your best bet.

The bottom line

At the end of the day, one of the most crucial factors in making an informed decision on merchant services for your business is that you understand your specific needs and how the pricing model you choose works.

Tidal Commerce offers the simplicity and convenience that business owners are looking for when considering a flat-rate credit card processor, but with the low rates that only the interchange plus pricing model can offer. Most importantly, we offer transparent pricing models and offer plenty of assistance when understanding how you’ll be charged. 

Reach out to us today for a free savings analysis, where we’ll show you exactly how much you will save by switching to Tidal Commerce.