The payments industry is full of different credit card processing price structures, making it difficult for business owners to immediately tell which price structure will be best for their business.
Two common pricing structures are Cost+ Pricing (or Interchange+ Pricing) and flat rate pricing.
Flat rate pricing is a popular credit card processing price structure that offers the same percentage fee, usually between 2.75% and 3.00%, on each transaction. It does not matter what the payment method is, or which card the customer uses. Flat rate pricing makes it easy to understand what your processing fee will be on each transaction. However, that simplicity can prevent business owners from seeking out lower transaction fees that they may be eligible for.
How can Flat Rate Pricing cost me more?
Many payment processors rely on confusion and misinformation to keep their merchants in the dark when it comes to understanding how credit card processing fees work. What many merchants don’t realize is that the fee they are charged for processing a transaction is made up of three smaller fees that are combined to create your final fee. The fees are:
Fee 1: Interchange Fee – The fee to process the transaction. This fee changes depending on your business, and what you are processing.
Fee 2: Card Brand Fee – A small fee that the card brand (Visa, MasterCard, AMEX, Discover) takes for each transaction.
Fee 3: Payment Processor Margin – The fee the payment processor takes for providing you with the ability to take payments.
The first and second fee is outside of the control of your payment processor. When a payment processor charges a merchant based on the Flat Pricing structure they are determining a flat rate based on all three of the fees mentioned above. This is the fixed rate that you will be charged on all your transactions.
The key to saving money on credit card processing is understanding the interchange fee. The interchange fee is a deduction that the card-issuing bank takes for handling a credit transaction. Depending on what your business is and the type of payment you are processing, this transaction fee can fluctuate.
Here is a diagram that shows what you pay if your payment processor charges a flat fee:
Because this is a flat pricing structure, you pay 2.9% on all your transactions, even if the actual interchange rate varies with the different transactions. Depending on your business and the volume you are processing each month, this may mean that your business is paying more than it needs to for payment processing.
Here is a diagram that shows what you pay if your payment processor charges Cost+:
With the Cost+ pricing structure the interchange fee will fluctuate depending on what you are processing, and the margin fee will be a set percentage for each transaction. This means, whenever you process a transaction that is eligible for the lower interchange fee you will save money with the Cost+ pricing structure compared to if the transaction was done using the flat pricing structure.
While Cost+ pricing might seem more complicated to begin with, it can result in significant savings for your business. As a payment processor, we may be a bit biased, but we take pride in being transparent about industry practices, so merchants can make an informed decision.