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Get a 0% Interchange-Plus Markup with Membership Fee Pricing

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So we’ve talked about tiered pricing and we’ve talked about interchange-plus pricing. These are the two most popular pricing models, and you probably already know – if you’ve read our articles – that interchange-plus pricing is almost always a better deal and a most honest arrangement for merchants. But there’s a new pricing model on the rise: the flat fee plus interchange system, which I tend to call membership fee pricing. It’s a variation of interchange-plus, but is quite different. Instead of charging the typical maintenance fee, percentage markup and per transaction fee, this new breed of provider just charges a monthly membership fee plus a per transaction fee, which is ostensibly a 0% markup. These providers will normally offer a few different plans, each with different value-added services. As a rule, the plans with higher membership fees will have a lower per transaction fee, thus providing better value for merchants who process more transactions each month. It’s an interesting concept, but here’s the real question of the hour: Can the membership fee pricing structure for payment processing compete with standard interchange-plus markups? The short answer is yes, yes they can. I’ll show you how.

Where to Find Membership Fee Pricing for Payment Processing

I first saw this type of pricing arrangement from Heartland Payments, which offers a $65 per month plus interchange plan for low-volume merchants (under $50K per year). If you read the review, you’ll see my math describing why this is not actually a good deal for most low-volume merchants. Still, it was an interesting proposition to me. Years later, services like Payment Depot (see our review) popped up actively advertising this type of pricing model. Payment Depot includes value-added services to make the plans even more alluring, along with nixing early termination fees. This leads to some serious savings and value for the broadest spectrum of merchants possible.

Why Does a Flat Fee Plus Interchange Make Sense?

Here’s what I make of this pricing structure. Most processors charge you a percentage fee, which means that larger transactions cost merchants more to process. But, when you think about it, larger transactions don’t necessarily cost the provider more to process. Having to deal with a thousand one dollar transactions is, in reality, far more expensive than dealing with one $1000 transaction. So why do most processors charge a percentage markup on transactions? As far as I can tell, there are two reasons:

  1. Because there is a greater risk involved with larger transactions. If a customer disputes a $1000 transaction and you decide to skip town on the bill, the processor is left with the task of paying it for you and taking you to collections. It’s much more likely to have one $1000 transaction go sour than one thousand one dollar transactions. For a greater risk, some would say, a greater reward is requisite for the company footing that risk.
  2. Because this is just “How It’s Done,” and it allows the processing company to make a larger profit on businesses that are processing high dollar volumes, even if they have comparatively few separate transactions. In most cases the businesses with high dollar volumes are willing and able to pay more than businesses with small dollar volumes, so it makes some sense to charge these businesses more for their processing. Also, the card networks charge a percentage fee and a transaction fee (via interchange/assessments), so it just makes intuitive sense for the processor to do the same.

There is merit to these rationales, but card payment processing providers like Payment Depot are proving that it’s possible to change this protocol. By paying a flat fee for account maintenance and access to the card networks, the playing field is leveled (to use Payment Depot’s tagline). A transaction fee covers the increased cost of dealing with a large volume of transactions, but doesn’t penalize merchants for processing large tickets. While processing a larger dollar volume with a low transaction volume will produce the most savings with this type of pricing plan, even small-ticket merchants can find solid value depending on their overall dollar volume.

Is Membership Fee Pricing the Future of Payment Processing?

The question of sustainability remains, of course, since providers like Payment Depot are relatively new on the scene. But, personally, although I am always cautious and skeptical, I see great potential in this pricing model. If these companies are making enough profit to say afloat without charging a percentage markup, then this could indeed be a revolutionary change for pricing in the payment processing sector. Time will tell, but for now I’m excited to see how things go, and I hope that merchants will give this pricing model a shot. If you do, please report back to me! I’d love to hear your experience. What do you think? Comment with your insights.

Tom DeSimone
Based in New York’s Hudson Valley, Tom has written for Merchant Maverick since 2013 and currently serves as the website’s managing editor for payment processing content. His work is cited by publications including TechCrunch, Washington Business Journal, and Bank Advisor. Press seeking expert comments for stories related to credit card processing can reach him via LinkedIn for a prompt reply.
Tom DeSimone
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7 Comments

Responses are not provided or commissioned by the vendor or bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the vendor or bank advertiser. It is not the vendor or bank advertiser's responsibility to ensure all posts and/or questions are answered.

    Boris Torres

    So just to be clear, by adding the monthly subscription fee I won’t have to pay the “interchange” fee? Or is it always going to be the interchange plus their processing fee.

      Tom DeSimone

      Hi Boris,

      You will have to pay the interchange fees and other pass-through fees just like with normal interchange-plus pricing. But there will not be a percentage markup. You pay the flat monthly fee to access the service.

        Rhonda

        Would you consider Heartland a good company to you for my business, since a Global bought them?

          Jessica Dinsmore

          Hi Rhonda,

          We rate Heartland and Global with 4/5 stars. Depending on your business needs, one of our highest rated processors, like CDG or Dharma, may be better options for you. Check them out and see what you think!

            Casey Hagadorn

            I cant find where they state the fee. Please just tell me the bottom line. I make jewelry so I don’t have alot of business. Thanks!

              Chloe Bahal

              Hi Casey,

              There are many factors that affect the fee so your best bet is going to be to contact the processor directly and get a quote. I hope this helps and if you have further questions please let me know.

                Marc

                What is the flat fee that Payment Depot charges? It doesn’t seem like they are truly transparent with this information since you didn’t have it in your review. Is it based on volume? Does it change based on type of merchant? It is quite possible that the flat fee that Payment Depot charges is too high to be truly competitive with certain business types. I believe this model will put Payment Depot out of business in a few years because I they won’t make enough profit to sustain itself. Which will be bad for merchants in the long run. And it is quite possible they will be forced to increase their membership fee over time to cover costs. READ the fine print.

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