Interchange pricing from card brand issuers and the associated dues and fees can be complex. Due to the complexities, some merchants move towards a flat-rate credit card processing model. While many companies offer flat-rate credit card processing, not all are created equal. The main trouble is due to the same fixed rate for all businesses using the system. That means you will pay much more with a flat rate if you have a high average transaction. The converse applies here; you may pay below cost with very small average transactions. Companies offering a fixed flat rate compensate for this loss by processing large transactions. Let’s explore why this is.
Varying Costs Based on Average Transactions
Interchange is complex, but the main characteristic is the many different Interchange rates for various card types within the Visa, MasterCard, and Discover branded cards. Some cards, such as regulated debit, are on the lower side percentage-wise while carrying a higher per-transaction cost. On the other hand, some cards cost much more percentage-wise while having a lower per-transaction cost. When you are on a flat rate while running lower-costing cards with high transactional amounts, the company processing your cards pockets more of your money. Next, we will run through some math to show you how this affects both high and low transactions at the Interchange cost for regulated signature debit.
Regulated Debit Transaction Comparison on Flat-Rate Pricing
The Interchange cost of a regulated signature debit is 0.05% + $0.21. If we have a $1,000 transaction, the underlying cost would be $0.71 or 0.07%. If you are on a flat rate of 2.60% + $0.10, you will pay $26.10 on the transaction, leaving your processor with a $25.39 profit. Conversely, if you have a $5 transaction on a regulated debit card, the underlying cost would be $0.21 or 4.2%. At the same flat rate, the charges would be $0.23, leaving the company with only a $0.02 profit from the sale. Any transaction below the $4 threshold on a regulated debit would incur a loss for the company offering 2.60% + $0.10 pricing. Incidentally, this is why the major card companies recently added the per-item fees to the percentage while avoiding losing on any sale above about $4.
We based the example above on only one of the hundreds of base Interchanges rates, but the same can be applied to all cards since a vast majority of consumer cards process at a much lower rate than 2.60%. The non-debit cards also have a $0.10 per item fee in comparison to the $0.21 for debit.
Why Would a Business Want Flat-Rate Pricing?
The number one reason a business would prefer a flat-rate pricing plan is simplicity. A fixed flat rate will let you know that X dollar amount of sales will be Y in processing fees making projections more accurate. As mentioned, Interchange pricing is complex, and the cost of processing compared to the volume will vary month-to-month. In turn, this makes calculations of profits less accurate as you cannot determine the types of cards that will walk in the door any given month.
How Can Total Merchant Services Help with Flat Rate Processing?
We will consider your average transaction, monthly volume, and card types you often process to provide an all-encompassing flat rate for your business. We can offer a fixed flat rate that will include all account costs so that your account incurs no per-item, monthly, PCI, regulatory fees, or any other fee beyond the flat rate calculated. By removing all monthly fees, the flat rate is all-inclusive. Just one singular percentage you can count on as the number to use in calculating the processing cost of any volume of business. The best part is that with high transactions on a consumer-based business, we can always offer a better rate than other companies with flat processing rates. Beyond that, we can set the account to a monthly or daily discount designed for those who want to avoid the large amount deducted from their bank monthly for processing costs.
For more information or to get your custom flat rate credit card processing quote, contact Total Merchant Services today at 1-800-518-6825 or email sales@totalmerchantservices.pro. One of our experienced agents will consult with you to work out the best flat rate available for your company’s processing situation while likely upgrading your equipment at no cost.