As a business owner it can be frustrating to pay different fees every month for credit card processing. That’s why flat rate credit card pricing is becoming a more popular method of credit card payment billing for merchants due to its simplicity.
But many merchants, particularly new ones, might not realize that simplicity doesn’t equal savings in flat rate pricing. What some companies market as a competitive flat rate is, in reality, oversimplified and costly pricing overshadows the savings.
Keep reading to learn what flat rate credit card processing is and what it means in terms of cardholder payments.
What Is Flat Rate Credit Card Processing?
This is a simplified pricing model where you pay a fixed price for the service, irrespective of transaction volume. The typical flat rates or linear rates for swiped transactions are about 2.75% – 2.9%.
Some fixed cost models do include an extra transaction fee, mostly in the 20-30 cents range. The flat rate usually applies to the types of cards being used, which can vary depending on the payment method.
To comprehend why such pricing can be so appealing to merchants, particularly the new ones, it is first essential to recognize that the payment industry is known for its complex pricing structures.
Although some of this is inevitable and inherent in the credit card processing industry, sadly, some processors rely on uncertainty and disinformation to extract more fees out of their merchants.
Advantages of Flat Rate Credit Card Processing
There are two strong reasons for using this method of pricing. First, you can know your costs,you can estimate them easily. Multiply the number of transactions by the rate of the processor, and you can determine the total amount.
Second, you can find a processor with fixed costs without an extra transaction charge. If you have a very low-ticket business, this could be a useful model for you.
Moreover, the key benefit for small businesses in this regard is the absence of monthly account payments or other costs.
It can save you a lot of money, mainly if you are a seasonal business owner or if you only allow infrequent transactions with a credit or debit card.
Disadvantages of Flat Rate Credit Card Processing
All these easy calculations might fool you into believing you’re going to save some money, but that isn’t completely true. Usually, this pricing type is 20% more costly than the rival pricing models, particularly the interchange-plus.
If you’re billed a flat rate of 2.9% each time you make a transaction with a real exchange rate of 1.5%, you’re going to pay more than the transaction costs to process, and the payment processor will profit from a higher margin on it.
There are so many different exchange rates that could apply to a single transaction, and using a fixed cost could be pretty costly, too.
This all depends on what form of business you have. If you have a high number of transactions, a fixed cost may not be the best option. Just because it sounds good doesn’t mean it is, you’ve got to check out the nitty-gritty.
Bottom Line
Many people, especially first-timers, prefer the simplicity of flat rate pricing. Several merchant service providers propose their “flat rate solutions” that just aren’t what they say they are.Â
The processing of flat-rate credit cards is a costly illusion that is more focused on clever marketing than fact. You might be facing a long list of charges added into the bill at the end of the month you didn’t even know about. Be vigilant when choosing your merchant service provider.
