Credit Card Processing

Flat Rate Credit Card Processing – Fool’s Gold

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Flat rate credit card processing is an expensive illusion based more on clever marketing than reality. What some companies advertise as a competitive flat rate is actually oversimplified and expensive pricing that conceals the true costs to process.

If you’re considering a flat rate credit card processing company, here’s what you need to know.

What is flat rate pricing?

Flat rate is an increasingly popular pricing model for credit card processing. The most prevalent version of flat rate processing is where a company charges its clients based on a fixed percentage of volume. Common flat rates are currently around 2.75% – 2.9% for swiped transactions. Some flat rate models also include a per-transaction fee, often in the range of 20 – 30 cents per transaction.   Note that this is different than subscription flat rate pricing, where the costs of interchange are still visible to the business.

Read about Subscription Flat Rate Pricing.


Flat Rate Pricing is An Illusion

The fundamentals of credit card processing make it virtually impossible for a processor to charge a competitive flat rate and remain profitable.

Each time a business processes a credit card transaction it is actually paying three separate fees. It pays a fee to the bank that issued the customer’s card, called an interchange fee. It pays a fee to the card brand (Visa, MasterCard, or Discover) whose logo is on the customer’s card, called an assessment. And it pays a fee to a credit card processor as a markup.

Interchange fees and assessments are fixed costs that remain the same regardless of which credit card processing company a business uses. Assessments remain fairly consistent across different types of transactions, but interchange rates fluctuate over about 280 different categories.

See for yourself

Visa interchange
MasterCard interchange.

The interchange rate assigned to an individual credit card transaction varies from 0.05% to 3.17% depending on several variables such as card type, card brand, processing method, settlement time, and more.

A processor that offers its clients flat rate credit card processing still has to pay interchange and assessments; it just does so behind the scenes without its clients knowing.

For example, Square charges its customers a flat rate of 2.75% for swiped and 3.50% for keyed transactions that only cost it about 1.40% and 1.95% on average. The difference between interchange and its flat rate is Square’s markup.

Companies that offer this type of pricing are not actually “real” processors. Instead, they are aggregators that use one merchant account to process transactions for thousands of businesses.

As I’ll explain in greater detail below, this type of flat rate pricing is inherently uncompetitive because an aggregator has to ensure its flat rate is high enough to cover all possible base costs associated with interchange and assessments as well as its markup, and base costs vary greatly.

Truly Competitive Pricing Vs. Flat Rate Pricing

Flat rate credit card processing is not meant to be competitive; it’s meant to be easy to understand. Businesses that become fed up trying to decipher credit card processing statements often gravitate toward flat rate pricing simply because they feel they have a better handle on charges.

A pricing model called interchange plus pricing allows businesses to have the best of both worlds — a flat, fixed markup from the processor and competitive pricing.

Interchange Plus Pricing

We’ve explained interchange plus pricing in detail before. Our credit card processing guide covers the finer points of why interchange plus is more competitive and transparent than other forms of pricing, including flat rate. In short, interchange plus pricing separates the costs of interchange and assessments from the processor’s markup.

Arguments for Flat Rate Pricing

Flat rate pricing has two redeeming qualities; it’s simple and it is sometimes offered without a transaction fee, which can be beneficial for businesses with lots of transactions. With flat rate pricing, you’ll also have known costs that don’t change, making it easier to calculate what you’ve paid or can expect to pay based on your volume and ticket size.

Known Costs

It’s relatively easy to forecast what charges will be with fixed-rate pricing. Simply multiply gross sales by the processor’s rate to calculate charges.

Simplicity seems like a small comfort considering flat rate pricing is typically 20% more expensive than other forms of pricing, but nonetheless, some businesses are willing to pay to have a flat rate. Paying more foe convenience may make sense for your business, just remember that in most cases you will be paying more. Don’t confuse simplicity with low cost.

Small Tickets

Some processors offer flat rate without a transaction fee. That makes it an ideal pricing model for businesses with very low average tickets.

For example, 2.75% of a $3 sale is only $0.0825, which is lower than what the processor pays in interchange charges. So, aggregators that don’t charge a transaction fee actually lose money by processing for businesses with very small average tickets. Square lost $30 million processing for Starbucks because of the low average transaction total.

Don’t be fooled by simplicity. Instead, side step fancy marketing ploys like flat rate pricing for truly competitive rates and fees like those offered by processors here in CardFellow’s marketplace. CardFellow only allows processors to use true pass-through pricing, making it easy for our clients to compare and select an exceptionally competitive processing solution.

Curious what you’ll pay for processing if you don’t use a flat rate solution? Find out now.

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Ben Dwyer

BY Ben Dwyer

Ben Dwyer began his career in the processing industry in 2003 on the sales floor for a Connecticut‐based processor. As he learned more about the inner‐workings of the industry, rampant unethical practices, and lack of assistance available to businesses, he cut ties with his employer and started a blog where he could post accurate information about credit card processing.As the blog gained in popularity, Ben began directly assisting merchants in their search for a processor. Ben believes in empowering businesses by providing access to fair, competitive pricing, accurate information, and continued support. His dedication to transparency and education has made CardFellow a staunch small business advocate in the credit card processing industry.

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13 COMMENTS

  1. from Mohamed, on February 28, 2018 02:33:39

    Hi Ellen,

    Thanks for the info you shared in your article, well explained and organized.
    I do have a different business model as I am in need of marketplace payment processors
    I did my study, and totally agree with you that interchange+ is most effective even for ~ 10$, for our business model.
    Most flat rates charge 2.9% plus 30 cents per transaction for marketplace processing. A company like Stripe even charge additional.5% for your total revenue as well 2$ for each vendor account. (Which addd a lot of fees and charges.)
    The only payment processor offers intercharge for marketplace is Adyen.
    What do you think about them and do you have any other suggestion for marketplace processing?

    Thanks
    Mohamed

    • from Ellen, on February 28, 2018 12:02:10

      Hi Mohamed,
      I’m not as familiar with marketplace payment processors because it’s a somewhat less common situation. I don’t know much about Adyen personally, as we don’t currently work with them.

  2. from Howard., on December 21, 2017 10:44:39

    Flat rate is much better. With an interchange price model, the processor is guaranteed to make money on every transaction. On the flat rate, the processor makes money on some and loses on some. So in the flat rate situation, the merchant passes the uncertainty of making money to the processor. I have 2 businesses running similar transactions. The interchange processing model consistently costs more than the flat rate model! My average ticket is $150.

    • from Ellen, on December 21, 2017 11:15:34

      Hi Howard,
      It’s true that on some transactions, a flat rate processor could lose money. That’s what happened to Square when they processed for Starbucks.
      However, the times that that happens are very limited. In general, a flat rate company like Square will be lower cost if your average transaction is under $10 or if you only take a few thousand dollars/month in credit cards. In other situations, competitive interchange plus processors are more typically lower cost. You mention a $150 average ticket – are you taking over $3,000 month in total credit card sales? If so, I’d be happy to take a look at your statement for you. In most cases, we find that businesses on flat rate are overpaying.

  3. from Rhia, on March 22, 2017 12:49:51

    Have you heard of Singular? I do about 25K a month in credit card business, almost exclusively swiped cards of Visa and MC. Can you recommend a good flat rate or other company? Thanks.

    • from Ellen, on March 22, 2017 14:36:11

      Hi Rhia,
      I’ve heard of Singular Payments, though they don’t place certified quotes through CardFellow. Out of curiosity, why are you looking for a flat rate company? With $25k/month, it’s likely to be more expensive. What I’d suggest is creating a quick profile here at CardFellow to use the price comparison tool. It will show you the best pricing available to your company from leading processors and allow you to compare it with any company you’d like.

      Additionally, the certified quotes you’ll see from processors in the CardFellow marketplace come with some great benefits, like our lifetime rate lock, no cancellation fees, and free statement monitoring to make sure you’re not overcharged. It’s completely free and no obligation: https://www.cardfellow.com/sign-up

  4. from Aline, on January 15, 2017 23:55:01

    Have you heard of a company of OR called rate lock? The promise a flat fee with a 48 month equipment lease.

    • from Ellen, on January 16, 2017 09:40:01

      Hi Aline,
      I’m not familiar with that particular company, but I’ll strongly caution against equipment leases. It’s likely to be a very expensive option. Here’s our article on why you shouldn’t lease equipment: https://www.cardfellow.com/blog/lease-credit-card-machine/
      You didn’t mention who the leasing company is, but one of the common ones is Northern Leasing, who has been sued twice by the state of New York and by merchants. Here’s our article on them: https://www.cardfellow.com/blog/northern-leasing-systems-lawsuit-scam-review/

      I’d highly recommend looking at a non-leasing option. You can also use the free quote request tool on our site to compare pricing from multiple processors all at once. All the quotes include a lifetime rate lock. The short (private) form is located here: https://www.cardfellow.com/sign-up.

  5. from Matt, on December 9, 2015 16:51:05

    I have a credit card processor that gives me a flat rate of 1.9% and 12.95 a month in fees. I have been doing a lot of research on the interchange plus model and based on my calculations I am unclear how they manage to make money unless their costs for swiped transactions average around 1.4% like you mentioned above for square. So when I got some quotes here they are competitive, sure, but seem slightly more expensive. I just don’t get it yet I keep doing the math again and again with all the docs I have in front of me.

    • from Julian, on June 8, 2017 03:53:56

      Hi Matt, please share with the thread who offers a flat rate of 1.9% and $12.95/month. Thanks.

    • from Evann, on September 26, 2016 16:52:38

      Who is the processor that you’re using (at 1.9% + $12.95) >

      • from Michael, on March 1, 2017 12:16:43

        Yes do share.

    • from Ellen, on December 10, 2015 13:44:16

      Hi Matt,
      There can be times when a flat rate processor like Square is a better choice for businesses, but those situations are fairly limited. If your average ticket is small (~$10 or less) flat rate is sometimes a very competitive option. A lot of times, however, it’s not the most competitive pricing a business can get because you’re always charged the same no matter how much a transaction costs to process. When you’re on an interchange plus model, you pay the true cost to process it, and a small markup. So you see the savings on your transactions that cost less to process.

      There are also situations where we see businesses that are on what they think it flat rate processing, but it’s actually just a form of tiered or bundled pricing, which is very misleading and expensive. If there are any notes about “qualified” or “non-qualified” card types, that’s the first red flag.

      If you’re interested, I’d be happy to look into the quotes you received here at CardFellow to see exactly what (or if) you could be saving. We’ll always tell you if you wouldn’t save by switching, too. (It’s rare, but it does happen.) Feel free to shoot me an email if you’d like – ecunningham at cardfellow.com.

      As for interchange plus and how they make money, when the processor charges you a true pass-through of interchange and assessments, you pay that wholesale cost of processing (the interchange and assessments) and then pay them their markup on top of that. It doesn’t matter to the processor what the costs for the transaction are, because you’re paying that, and then their markup. Because of that, competitive interchange plus markups are usually pretty small.

      It’s also a lot more transparent when the actual cost of processing is passed directly to you, because then you know exactly what’s being paid in non-negotiable rates/fees, and what you’re paying as someone’s profit. With flat rate processing, you don’t necessarily see it, depending on how the processor chooses to structure your statement. And if you have a lot of low cost transactions (like, say, regulated debit cards, which are 0.05% + $0.21 at the interchange level) then you’re paying a TON to the flat rate processor in profit, which isn’t the case with an interchange plus processor.

      So, there are a lot of factors that go into it, and it’s more complicated than most people care to get into, which is where we come in. 🙂