Introduction
When it comes to credit card processing fees, there are two primary pricing models: flat rate and interchange plus. Here’s a closer look at each of these pricing models and how they differ:
Flat Rate Pricing
Flat rate pricing is a pricing model where the merchant pays a fixed percentage rate for each transaction, regardless of the type of card or the transaction amount. Flat rate pricing is often advertised as simple and straightforward, with no hidden fees or complicated pricing structures. Examples of flat rate pricing include Square’s 2.6% + $0.10 per transaction or Stripe’s 2.9% + $0.30 per transaction.
Pros of Flat Rate Pricing:
- Simple and easy to understand.
- No complicated pricing structures or hidden fees.
- Predictable and consistent pricing.
Cons of Flat Rate Pricing:
- Can be more expensive for high-volume merchants or for transactions with high ticket values.
- May not offer the lowest fees for all types of transactions or card types.
Interchange Plus Pricing
Interchange plus pricing is a pricing model where the merchant pays a fixed percentage rate for each transaction, plus the actual interchange fee charged by the card network (such as Visa or Mastercard). The interchange fee is a fee paid by the merchant’s bank to the card network and is typically a percentage of the transaction amount. With interchange plus pricing, the merchant pays the actual interchange fee plus a markup percentage charged by the payment processor. For example, a payment processor may charge a markup of 0.5% + $0.10 per transaction on top of the interchange fee.
Pros of Interchange Plus Pricing:
- Can be less expensive for high-volume merchants or for transactions with high ticket values.
- Offers transparency into the actual interchange fees charged by the card networks.
- Allows for greater customization and flexibility in pricing.
Cons of Interchange Plus Pricing:
- Can be more complicated and difficult to understand.
- May have more hidden fees or variable pricing structures.
- May be less predictable or consistent than flat rate pricing.
Conclusion
In conclusion, both flat rate and interchange plus pricing have their pros and cons. Flat rate pricing offers simplicity and predictability, while interchange plus pricing offers transparency and customization. Ultimately, the right pricing model for your business will depend on your transaction volume, ticket size, and the types of cards you accept. Be sure to carefully consider the costs and benefits of each pricing model when selecting a payment processor for your business.
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