Flat-Rate Credit Card Processing 101: The Complete Guide For Merchants
Also known as flat-fee credit card processing, this payment processing model can be cost effective for some businesses, mostly new and very small ones.
Flat-rate credit card processing provides a simple, easy-to-understand model for merchants looking to accept card payments.
Flat-rate credit card processing removes the unpredictability and complexity that can come with other pricing models. Below, we’ll take a closer look at what flat-rate credit card processing is, how it works, the pros and cons of the model, and whether it’s a good fit for your type of business.
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What Is Flat-Rate Credit Card Processing?
Flat-rate credit card processing is a payment model that combines interchange fees and processor markups into a consistent, standardized fee for all transactions of its type.
For example, a payment processor using flat-rate pricing may charge 2.9% + $0.30 for all online credit and debit card transactions. This rate is charged regardless of the interchange fees or network fees associated with the card.
What Flat-Rate Payment Processing Is Not
Flat-rate pricing does not mean that you’ll pay the same price for all your transactions. It just means that the network fees associated with the payment method will be rolled into one consistent, predictable rate. You generally will, for example, pay a different flat rate for in-person card transactions than you would for eCommerce transactions.
How Does Flat-Fee Credit Card Processing Work?
To understand what’s going on with flat-rate pricing, you should know what your credit card processing fees are composed of. These are:
- Interchange fee: These are the fees paid to the bank that issues the card. These fees cover the cost and risk of handling payments.
- Assessment fee: This is a fee paid directly to the card network’s owner (Visa, Mastercard, Amex, etc.). Because flat-rate pricing charges the same fee regardless of interchange and assessment costs, the merchant will effectively overpay for some transactions and may underpay for others.
- Markup fee: This is the portion of your transaction fee that goes to your payment processor.
The flat-fee credit card processing pricing model is predicated on the idea that you’ll pay a fixed rate for each transaction, thus allowing you to anticipate your monthly processing costs. Flat-rate processing essentially combines all the fees with the markup charged by your payment processor and presents it as a simplified transaction fee that might look something like these:
- 2.6% + $0.10 for card-present transactions
- 2.9% + $0.30 for card-not-present transactions
In other words, if you had a $20 in-person transaction at 2.6% + $0.10, you’d pay $0.62 for the transaction, regardless of what card is used. If that transaction had been online at 2.9% + $0.30, it would cost $0.88, regardless of the card used. Pretty straightforward, no?
Which Payment Processors Use Flat-Rate Credit Card Processing?
Flat-rate credit card processing tends to be a model used by third-party payment processors. These services generally do not charge a monthly fee but rely mainly on transaction fees to support their business model. Some of the big names in third-party payment processing include Square, Stripe, and PayPal, all of which use flat-rate pricing by default.
What’s Included In Your Flat-Rated Credit Card Processing Fee?
Most of the payment processors that use flat-rate pricing do so in lieu of recurring monthly fees. That means your transaction fee will generally cover:
- Transaction costs
- PCI compliance
- Account maintenance
- Fraud monitoring
- Some supporting software
- Gateway fees
On the other hand, you may still have to pay additional fees for:
- International transactions
- Currency conversion
- Advanced features and software
Average Flat-Fee Credit Card Processing Rates
At the time of this update, flat-rate credit card processing fees range between 2.6% and 3.5% on the variable side and between $0.05 to $0.50 on the fixed fee side. You may see different combinations of variable and fixed fees, depending on whether the processor is primarily serving small ticket or large ticket merchants.
Are Flat-Rate Merchant Services Cheaper?
On a per-transaction basis, flat-rate pricing is usually significantly more expensive than interchange-plus pricing. Remember, you’re effectively paying for far more than just the transaction with each swipe. That said, flat-rate pricing may be the cheapest way to accept credit card payments for some merchants.
Because flat-rate payment processors generally don’t charge a recurring account fee, the following types of merchants may save money with flat-rate pricing:
- Businesses with low transaction volume
- Seasonal businesses
- Businesses that mainly use cash or bank-to-bank transfers for transactions
- New businesses
Flat-rate pricing will likely not be cost-effective for:
- Large corporations
- High-volume businesses
- Businesses doing over $5,000/month in card-based sales
Alternatives To Flat-Rate Credit Card Processing
While we generally don’t steer businesses away from flat-rate credit card processing (that honor is reserved for tiered pricing), there will likely come a point for many businesses where they outgrow the flat-rate model. When a business needs a more cost-effective model for higher transaction volumes, we recommend one of the following two alternatives.
When To Look For Flat-Rate Credit Card Processing
- Do you own a very small business?
- Do you own a newly-established business?
- Are you running a business as a side gig?
- Are you running a business for only part of the year?
If you answered yes to any of those questions, flat-rate processing might be a good fit for your business.
Yes, you’ll pay more on a per-transaction basis for credit card processing. However, you also won’t have a long-term contract or have to pay all the additional fees that typically come with a true merchant account. Flat-rate pricing can save you money by eliminating most, if not all, of these additional fees. The lack of a long-term contract makes switching to a full-service merchant account when the time is right easy and painless.
Ready to get started with a payment processor? We can help you find the best credit card processing for your small business.