In 2020, more small businesses pivoted to accept electronic payments. Those that did reaped the rewards as online sales reached historic levels and new online buying habits aren’t expected to shift back. Some businesses, in haste, may have accepted less than ideal payments solutions in order to get up and running quickly. Others may have entered 2020 with small online transaction numbers and ended with record-setting years. The truth is, if you have flat rate merchant services, you probably gave away too much of your profit in fees during 2020. With the holidays behind us, the time is right to reset and revaluate your flat rate credit card processing.

What Does “Flat Rate” Mean?

Every credit card transaction requires a fee, called Interchange, set by the credit card companies and is paid to the issuing banks. Interchange Rates can be complicated as they vary based on the type of card, method of transaction, item purchased, and more. Interchange is separate from the processor’s fee, which is also charged per transaction.

With flat rate merchant services, the rate is simply a flat percentage for each transaction. Of course, this flat rate has to be high enough to account for the variation in Interchange rates, and still leave room for the processor’s cut. The appeal of flat-rate processing is that the fees are easy to understand and predictable for the merchant. However, the business owner never knows the actual cost each month versus the amount of margin earned by the processor.

Flat rate credit card processing is common with merchants looking for an entry-level solution. Aggregators like Square, PayPal or Stripe, offer flat-rate processing without the need for a merchant account. Many new or very small businesses can’t meet the underwriting requirements for a merchant account; therefore, going with an aggregator may be their only choice in the beginning.

Businesses that qualify for merchant accounts may still choose flat-rate processing. They may prefer the simplicity and stability of paying a flat rate. Unfortunately, not many merchant services providers actually explain how credit card processing works, and business owners end up paying too much.

Flat Rate vs Interchange Plus

Interchange Plus pricing is an alternative to a flat rate. With Interchange Plus, the business pays the Interchange fee specific for each transaction type, plus a pre-negotiated margin for the processor. While flat rate may seem more straightforward, Interchange Plus is actually much more transparent: the business owner can see the exact Interchange cost for each transaction.

The Interchange Plus model can also save a merchant money. For example, the cost difference of a debit card transaction flat rate vs Interchange Plus is dramatic. Debit transactions are lower risk because funds are taken directly from a checking account. As a result, the Interchange rate is typically below 1%. Given that a common flat rate is 2.9%, merchants give away a significant amount of their profit to the payment processor on each flat rate debit card transaction.

Interchange Plus is ideal for established businesses that qualify for a merchant account. The underwriting process does take time, but it can be worth the wait not only in the potential cost savings, but also in the flexibility and improved customer service that can accompany the right merchant account. An experienced payment processor, like eMerchant, can break down the numbers and show you the savings.

Want to Switch from Your Flat Rate Processing?

If you have flat rate merchant services, now may be the time to switch. Do you have 12 months of processing history? Do you generate more than $50,000 in processing annually? Take a stand to save money in 2021! Contact eMerchant for a side-by-side comparison between your current flat rate and our Interchange Plus solution.