Flat-Rate Credit Card Processing: The Complete Guide For Merchants

Credit card processing pricing models can get quite complex, so businesses may be attracted to flat-rate credit card processing companies. Flat rates make it easier to predict your monthly processing costs.

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, and the pros and cons of the model.

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.

How Does Flat-Fee Credit Card Processing Work?

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. However, we should point out that we have yet to see any processor offer a true flat-rate pricing model. Even small business-favorite Square has at least three different rates, depending on whether you’re accepting a card in person, over the internet, or manually entering the card information.

Flat-rate processing essentially combines the interchange fees charged by the networks (such as Visa and Mastercard) with the markup charged by your payment processor and presents it as a simple 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?

Note that 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. That means your transaction fee will generally cover:

• PCI compliance
• Account maintenance
• Fraud monitoring
• Some supporting software
• Gateway fees

On the other hand, you’ll likely have 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 A Good Deal?

An important consideration with flat-rate pricing for merchant services is that it involves an important tradeoff — it’s usually significantly more expensive on a per-transaction basis than other pricing models.

However, this disadvantage is offset by the fact that most providers using a flat-rate pricing model don’t charge a monthly account fee or any of the other fees that most traditional providers tack onto your bill.

For this reason, flat-rate pricing is best for:

• Very small businesses
• Low-volume businesses
• Seasonal 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 models.

Flat Rate VS Interchange-Plus

An increasingly popular processing rate plan is interchange-plus pricing. Under this type of pricing, your processor will charge the basic interchange rate plus an additional markup.

For example, a typical interchange-plus rate quote might be something like interchange + 0.30% + $0.15 per transaction. In this case, interchange fees are passed on at cost, and the processor’s markup is clearly disclosed as being 0.30% + $0.15 per transaction. If we again assume an average interchange fee of 1.4% for card-present transactions, this works out to an effective average rate of 1.70% + $0.15 per transaction, which you’ll note is significantly lower than the average flat-rate fee.

There are a few things to keep in mind before you switch over, however. Remember that interchange plus pricing always includes an interchange fee even if it’s not explicitly quoted to you. Providers offering interchange-plus pricing will be signing you up for a traditional, full-service merchant account. This is much more stable and secure than what you’ll get with a PSP, but it comes at an additional cost. Expect to pay a monthly account fee at an absolute minimum. There are also a host of other fees you might have to pay, increasing your costs even more.

Note that interchange-plus pricing is sometimes referred to as “cost-plus pricing.”

Flat Rate VS Subscription Pricing

An even newer pricing model that’s beginning to catch on is subscription pricing (sometimes called membership pricing). As is the case with interchange-plus pricing, the interchange fees in subscription pricing are passed on directly to you on a per-transaction basis. So a subscription pricing version of the quote in the previous section would look like interchange + $0.15 per transaction. You’ll notice something missing: The subscription pricing does not include a percentage markup.

Subscription pricing removes that part of the transaction fee in exchange for higher monthly account fees. That can make subscription pricing extremely cost-effective for businesses that process a very high volume of transactions. Typically, the monthly fee increases with transaction volume/value, while the flat fee markup decreases.

Like interchange-plus pricing, subscription pricing means getting a full merchant account with all of the associated costs.

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 companies for your small business.

Flat-Rate Credit Card Processing FAQs