We’ve covered how processing works in the past and gone over some of the ways processing rates are calculated, but we haven’t explained in detail why a business might be charged a specific rate.
You’ve probably wondered why your business is on a different pricing structure than the one down the street, or if you are even on the right pricing structure; flat rate, tiered, or interchange plus.
There’s no easy answer as every business and processing company is different, but we are going to try and explain the most common pricing structures, and list the pros and cons of each.
There are three main pricing systems a credit card processor will use to determine what your business should pay every month for processing.
The three most common ones are Tiered Pricing, Interchange Plus Pricing, and Flat Rate Pricing.
We’ve covered Tiered Pricing before in more detail in a previous blog, but to summarize it, tiered processing is a combination of interchange rates charged by the card brands and various other costs. Processors will put transactions into a Qualified, (the cheapest rate a card will run at), Mid-Qualified, and Non-Qualified. Your Tiered rates are calculated based on what kind of card brands you swipe and how the transaction is processed, either swiped or keyed.
Now typically, Tiered Pricing is designed to be easy to understand and for merchants to clearly be able to read what they are being charged every month. But it isn’t a great fit for every business.
Usually, if you’re running low volume every month, Tiered is a pretty good option and it saves you a little extra.
Flat Processing means you will only pay one rate for every transaction your business does, whether it be keyed, swiped, or a unique card type.
It will either be a higher percentage than what you would pay on Tiered, but Flat Rate Processing is a good option if your average ticket item is under $15.
If your business processes small transactions, you can get by with a Flat Rate, but you should still be aware of any extra fees that might be on your statement and see if you’re paying extra.
New to the processing scene, Interchange Plus tends to be a more complicated option, meant to cut down on processing companies sneaking extra costs in on the sly.
We tend to recommend it for businesses who process a lot of volume every month, and who have high ticket items. It may be a little more tricky to read, but Interchange Plus helps you cut down on a lot of costs and is traditionally the best fit for a big company processing a lot of payments every month.
Interchange Plus can be difficult to read on a statement if you don’t know what you are looking for, making it harder to catch if the quoted rate is actually what you're being charged.
Be sure to review your statements and keep an eye to make sure you’re paying what you were promised.
It would be disingenuous to claim one solution is inherently better than the others, and irresponsible. Even Interchange Plus which is touted as being the most transparent pricing can cost your business more if the processor providing the service is finding ways to nickel and dime you.
The truth is you’ll have to talk to your processor and ask them about what fees they charge, what their price points are, and what your business will be charged for the different cards you’re processing.
All of these solutions can cost you money if you’re working with a processor that doesn’t have your business’s best interest in mind. Don’t fall into the trap of assuming one pricing tier is automatically better or worse than another. Processing costs will vary based on your provider and your business. What’s right for the coffee shop down the street might not be a good fit for your E-Commerce shop.
If you’re unsure of what to look for, it comes down to asking the right questions and weeding out the bad processors. Ask them what you’ll be charged in fees every month, and what that fee covers You should also ask them if they make better commission off selling a certain processing structure.
If they can give you straightforward answers, you’re on your way to seeing what your costs will be.
Unsure if you’re getting a fair deal on your processing costs? Contact us for a free analysis and we would be happy to let you know if you’re really getting the best deal possible for your business.
