Flat Fee Processing 101: What Is It?

Today we’re going to talk about flat fee credit card processing.

In your search for a payment processor, you’ve probably come across companies saying that they are “flat rate.” But what does that mean? And how will this payment structure impact your business?

This post will dive into the ins and outs of flat fee and flat-rate credit card processing. You’ll learn what these terms entail and what they mean for your business.

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Flat Rate Percentage

A flat rate percentage is a fixed percentage that you pay for every transaction. While this might seem simple, it ends up costing you much more money in the long run. That’s because you are always paying more than interchange, which is the direct cost of processing. The merchant services provider is pocketing the rest. This might be a good option for business owners who are very low volume or ones that rarely accept credit cards. However, this payment structure punishes businesses trying to scale and grow. Since your payment processor is making money off every one of your transactions, you end up paying more the better your business does. Doesn’t make sense, does it?

Flat Rate Percentage at a Glance

  • Easy to understand
  • Interchange fees and markups are bundled together
  • Fee breakdown isn’t very transparent
  • Ideal for new businesses that don’t process a lot of credit cards

One of the most popular examples of a company that uses this pricing structure is Square.

Square’s fee is a flat 2.6% + $0.10 for contactless payments, as well as swiped and inserted credit card payments. Meanwhile, keyed-in credit card transaction fees are 3.5% + $0.15 per transaction. This means that you pay those same percentages for every transaction regardless of the type of card used or the industry you’re in.

While this seems simple, it may end up costing you much more money over the long term. This is because flat-rate credit card processing bundles up the interchange fees with the processor’s markup.

Interchange rates are variable and can range from 0.05% to 3.17% depending on factors like the type of card used, processing method, etc.

That said, the average interchange rate is 1.81% for credit card payments and 0.3% for debit cards. It’s also important to note that interchange fees are paid to the issuing bank and are determined by credit card brands like Visa and Mastercard.

When you’re on a flat rate percentage structure like Square’s, you’d be paying at least 2.6% per transaction even if the interchange cost related to that sale is often significantly lower.

So, while the payment structure is easy to understand, it’s not always the most cost-effective option. That’s because you are almost always paying more than the interchange rates, which is the direct cost of processing. The rest of what you pay belongs to the payment solutions provider.

Flat Rate Percentage Example

Here’s a quick example of the flat rate percentage structure in action:

Let’s say, you process $20,000 in credit cards in a given month, and you had 200 transactions. With a flat rate merchant services provider like Square, here’s how much you would pay:

$20,000 x 2.6% = $520

200 transactions x $0.10 = $10

Your payment processing costs would be $540.

Who Can Benefit from Flat Rate Percentages?

This might be a good option for micro or small business owners who are very low volume or ones that rarely accept credit cards. If you’re a type of business that’s mostly cash-based and rarely accept credit and debit cards, then a flat rate payments processor may be a good option.

This may also be ideal if you’re just starting out and aren’t sure about the number of sales you’ll generate.

However, this payment structure punishes small businesses trying to scale and grow. Since your payment processor is making money off every one of your transactions, you end up paying higher fees the more you sell.

Membership Pricing or Flat Rate Fee

A flat-rate fee is a fixed dollar amount that you pay a payment solutions provider, usually monthly. This is also referred to as a monthly membership or monthly maintenance fee.

A flat-rate fee is designed to cover all aspects of your processing other than interchange in one convenient cost.

Membership Pricing at a Glance

  • You pay the direct costs of interchange
  • No markups on top of interchange fees
  • Fee breakdown is transparent
  • Ideal for growing businesses that process $10,000+ in credit card payments

With membership pricing, you pay for the direct cost of interchange without a markup from your payment processor. This means that if a transaction’s interchange cost is 1.5%, then that’s exactly how much you’ll pay.
Credit card processing companies that use a membership model simply charge you a flat monthly fee to access direct interchange rates.

Who Can Benefit from Membership Pricing?

Businesses that have large credit card processing volumes would benefit the most from membership-based payment processing. While flat rate markups can balloon the more credit cards you process, a membership payment structure means your monthly fees remain relatively flat even if your processing volume increases.

Ultimately, this leads to higher profits that you can reinvest back into your business.

Membership Pricing Example

Now let’s look at the membership pricing structure in action:

If you process $20,000 in credit cards in a given month, and you had 200 transactions, here’s how much you would pay when you sign up with a membership provider like Stax:

$20,000 x 1.8% [average interchange rate] = $360

Stax membership fee = $99

Your payment processing costs would be $459.

In this scenario, the credit card processing fees for a membership structure are much lower than a flat rate percentage provider.

How to Choose Between Flat Rate and Membership Pricing

Trying to decide between a credit card processor that offers flat rates vs membership pricing? Here are some quick tips to help you choose.

Run the numbers.

The best way to determine what payment structure works best for you is to calculate the fees using figures from your own business. Specifically, make sure you know your:

  • Total processing volume
  • Number of transactions
  • Average transaction value

From there, run the numbers using the fees quoted to you by your provider, then see where you land.

Know your payment types and types of transactions.

It may also be helpful to get an idea of the types of payments you accept the most.

  • Are you a cash-based business?
  • Do you do a lot of card-present transactions?
  • Do your customers prefer debit cards or do you get a lot of high-end rewards cards?

These things can greatly influence interchange rates and they can affect how much you end up paying.

Know your preferences.

Flat rate percentage processing is designed to be easy to understand. You pay a single percentage across the board and don’t have to worry about variable fees.

Meanwhile, payment processors that use membership or interchange plus pricing may be a tad more complex in that they break down the different fees that you’re paying. So when you’re reviewing your statement, you’ll see a breakdown of the interchange rates, assessment fees, account fees, and other costs.

The latter is great for transparency and it’s why many entrepreneurs prefer membership pricing. It allows you to see exactly how much you’re paying.

However, there are some business owners that prefer a more streamlined statement for simplicity’s sake, which is why they favor flat-rate pricing.

Final Words

Understanding the difference between flat rate percentages and fees will help you scale your business, think smarter, and make better decisions. Here at Stax, we charge a flat-rate monthly membership to access the direct cost of interchange, no hidden fees, and no contract.

To learn more about Stax and how we could be a great fit for your business, contact a Payments Consultant to request a Custom Quote today.

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