Business Tips

Flat Rate Credit Card Processing: Is It Right For You?

Read Time: 6 min

Flat rate credit card processing is one of those terms you’ll often hear about when seeking payment processing but that can also be confusing. Finding a credit card processor is already tricky, and then you must decide on a monthly plan. There are so many pricing models to choose from, it can be hard to know which one is right for your business. To know if flat rate credit card processing will work for your business, you must first know what it is. Flat fee credit card processing can be attractive for its simplicity. But, before you sign up for this type of processing plan, you should also explore the alternatives. Let’s dive in!

What is Flat Rate Credit Card Processing?

flat rate credit card processing

Flat rate credit card processing has become increasingly popular in today’s credit card-driven market. Also known as flat rate merchant processing, this pricing model charges a fixed percentage, or rate, based on how many credit cards you process. This is opposed to Interchange Plus pricing, where you pay a different fee per transaction.

To better understand flat rate credit card processing, you must know certain things about a credit card transaction. Each time you process a credit card, you pay three separate fees, including:

  • An interchange fee set by and paid to the bank that issued the credit card.
  • An assessment fee paid to a card’s brand, such as MasterCard or Visa.
  • A third fee, known as a markup, paid to the credit card processor.

For more about credit card processing fees, check out our complete guide.

Flat rate vs. interchange plus

Let’s look at the basic Interchange plus model of pricing. Interchange is the rate assessed for every credit card transaction. It’s how credit card issuers make most of their money. Each time a card is swiped or inserted into a terminal, the credit card company charges an interchange fee. There are two parts of an interchange plus model: The credit card networks set the “interchange,” and the markup fee your processor charges is the “plus.”

Any flat rate pricing model includes the interchange charges into the average percentage charge of 2.75% to 2.90%. However, the fixed rate for the interchange fee is different for different card brands and types. This is why flat rate credit card processing has become so popular.

For instance, the interchange fee for a debit card is usually around 0.05% or 22 cents per transaction, while it hovers at around 2.00% or 10 cents per transaction for a credit card. Additionally, a small percentage is charged on top of the interchange fee–normally just under half a percent, or about 20 cents per transaction. These rates depend on the credit card provider.

It may seem like you’ll pay more for an interchange plus model than flat rate processing. But if you process a high volume of cards, you may be better off paying per transaction than a lump sum. When you break down the costs for interchange plus, you will pay about $700 less per month per 100,000 transactions–a savings of about $8,400 per year. The extra you pay for flat rate merchant processing is for a seamless transaction–one that’s simpler to set up and implement.

Average Flate Fee Credit Card Processing Rates

With the interchange fee, assessment, and markup built into flat rate credit card processing, you may wonder exactly what you’ll be charged for it.

Typically, what you pay for flat rate credit card processing is about 2.75% to 2.90%, or 20 to 30 cents per transaction. The interchange fee is included in the flat rate to simplify the pricing model. This type of pricing model streamlines charges, making them easier to understand, but often costs more than other models.

With flat rate pricing, it’s pretty easy to calculate what you’ll pay. With respect to credit card volume, simply multiply your gross sales by the processor’s rate to determine the price.

Some flat rate credit card processing models include a per-transaction fee as well. This fee ranges from 20 to 30 cents for each transaction. This and the flat rate merchant services model are different than a flat subscription rate, where interchange costs are transparent and can be noted by a business for reference.

Is Flat Rate Credit Card Processing for You?

Before you decide if this pricing model is right for you, let’s break it down. Flat rate processing has two pricing modes–flat rate percentage pricing and flat rate subscription costs. If your goal is to simplify how you process your credit or debit cards, these alternatives to flat rate credit card processing should be carefully considered. In addition, compare flat rate pricing with interchange plus to see exactly what you’re paying with respect to convenience.

Determining your alternatives

A flat rate percentage plan is based on the volume of credit cards processed regularly. For example, common flat rates, as previously discussed, stand (as of 2020) at about 2.75% to 2.90% for each swiped or chip transaction. Some of these pricing models include a per-transaction fee of about 20 to 30 cents.

flat rate processing

Many business owners like this model because it is simple and convenient. However, this payment processing model may end up being costly if you have a large amount of credit card transactions. In this scenario, you will normally pay over the established interchange cost.

You already know the interchange rate stays fixed, regardless of the processor. However, if you choose flat rate processing, the payment processor is not always transparent about the interchange cost, as they are paying it on the merchant’s behalf. There is not much regulation when it comes to credit card processing, so this fee can be padded. To know if “padding” or an additional cost occurred, you would need to look up the interchange fees yourself. Because you do not pay interchange directly, there is no guarantee that you will pay the fee at cost. The processor can charge whatever percentage they like, pocketing any overage for the convenience of the service.

The more you sell as a business and the more transactions you process, the more you may end up paying with flat rate credit card processing. However, don’t let that deter you, as some companies offer manageable rates.

Flat rate subscriptions

With a flat-rate subscription plan, you typically pay a fixed dollar amount each month to the credit card processor. Therefore, the processor’s markup is a flat monthly fee rather than a percentage of the volume of sales. The business, in turn, pays the exact interchange fee plus a flat monthly or annual fee to the processor. In most instances, a per-transaction fee may be assessed as well.

With flat rate credit card processing, a flat rate subscription is more transparent, as you can see the precise cost of processing. This includes what you pay for an interchange fee. The subscription plan lets you pay the same fee regardless of your sales volume. If you are a small business looking to grow your sales, a flat rate subscription may be right for you.

Final Thoughts

Whatever you choose for a flat rate merchant services plan, keep in mind–convenience is expensive. This is why you must do your research when it comes to flat rate merchant processing. Then select the best pricing model for your business’s specific needs, and the types of transactions you generally process.

When you look at how pricing breaks down, simplicity may seem like a small benefit but convenience is also important. This is why most businesses are willing to pay more for a flat rate versus an interchange plus model. The added cost of flat rate processing is worth the processor’s payment system. Easily integrate the system with existing software to reduce customer complaints and technical glitches.

While a flat rate sounds like you’re saving money, it really means saving yourself the aggravation. If you don’t mind spending extra for a seamless plan, consider flat rate credit card processing for your business.