Credit Card Processing Blog

While looking for a credit card processor you’ve probably come across companies offering “flat fee processing” and now you’re wondering if it’s the right choice for your business.

What is flat fee processing?

Flat rate is a popular pricing model for credit card processing and typically involves one of the following two options: a flat fee percentage or flat fee subscription.

Flat-rate percentage

A flat rate percentage is a fixed percentage that you pay for each transaction and it’s based on volume. Common flat rates are currently around 2.75% – 2.9% for swiped transactions. You may also find some flat rate pricing models that also include a per-transaction fee, often in the range of 20 – 30 cents per transaction.

Many business owners will be lured in by the convenience of a flat rate percentage pricing model — after all, it seems remarkably simple. While it may be an okay option for smaller businesses that only accept credit cards on occasion, it can end up being very costly if you are processing a larger volume of transactions. You’ll always end up paying above and beyond the interchange rate.

Interchange fees are fixed costs that remain the same regardless of which credit card processing company a merchant uses. With flat rate percentage pricing, a payment processor doesn’t have to be transparent about interchange costs because they’re paying them on your behalf. Because of this, they’re at liberty to charge whatever percentage they want for the convenience, pocketing the rest in the process.

The percentage is also calculated based on your sales volume. The more you sell, the more transactions you process, the more you’ll pay — which, isn’t exactly a great deal for businesses that are hoping to expand and grow.

Flat-rate subscription

On the other hand, flat-rate subscription pricing is a fixed dollar amount that you pay the payment processor, usually monthly. With this kind of pricing model, a processor’s markup is applied as a flat monthly fee and per-transaction fee instead of a percentage of sales volume. The business pays exact interchange fees in addition to a flat monthly or annual fee to the processor. In most cases, there is also a per-transaction fee, which means that a merchant may also pay a fixed amount on every transaction.

As far as flat-rate pricing goes, a flat rate subscription model is a lot more transparent because you’re able to see the actual cost of processing (interchange fees). Another advantage of this kind of pricing model is its simplicity. You’ll always pay the same fees regardless of sales volume. If you’re a new business and overwhelmed by all the different fees on your monthly statement but are still looking to grow your sales, a flat fee subscription might be a great option for you.

However, keep in mind that convenience comes at a price. While a subscription model is likely going to cost your business less than a percentage model, it still might not be the most competitive pricing available to you. So, do your research. Which processing fee model is right for you all depends on your specific business needs.

Imagine you’re a business owner and you have customers that return every month (or year) to purchase the same service. Now imagine that every month you have to invoice and track down those payments manually. You do this with the good faith that (hopefully) your invoices will reach your customers and they’ll pay on time. It’s stressful and you never know if and when you will receive your revenue. What if things could be different?

If you see you and your business in the above-mentioned description, you’re the perfect candidate for recurring payments. With a subscription-based service, you store your client’s credit card info and charge their card on a regular monthly (or annual) basis.

Thinking of switching over to automated payments? Here are a few reasons why adopting a subscription-based payment model is to your advantage as a merchant.

  1. It saves time.

Trying to track down payments every month is a recipe for insanity. The more you can automate in your business the better. Not only will you ensure that your customers pay on time, but you’ll also never have to worry about double charging them. When payments are automated and recurring, it frees up time for you to focus on other aspects of growing your business.

  1. You’ll pay lower interchange fees.

The interchange rate is what card issuers (Visa, Mastercard, American Express, Discover) charge for processing credit cards. While rates vary depending on credit card type, if your business offers a monthly membership or subscription, you will end up paying a lower interchange fee because you’re deemed a lower risk. Since you have the credit cards on file and are charging them the same fee each month, the chance of fraud occurring is much lower.

  1. It makes for more consistent cash flow.

When you can’t predict if/when your customers will pay for their services, it makes for shaky cash flow and a disorganized business. Instead of sending out invoices a la carte, a recurring payment system will send them out at the right time, ensuring the customers pay and you receive your payments on time. When you know exactly how much money is coming in each month and when it’s so much easier to plan for the future of your business.

  1. Faster payments and better recordkeeping.

When payments are automated, your money lands in your bank account faster with less work for you. It also means that all of your payments can be tracked under one master set of records. If something needs to be followed up on, your accountant or bookkeeper won’t have to sort through all kinds of different records. Instead, everything will be available in one place.

  1. It provides better customer service.

It would be pretty annoying if every month you had to go into your gym and pay your membership in person — or even worse, if you had to pay for all of your memberships and services, up front, in advance. By providing customers with a subscription-based payment system, they never have to worry about forgetting a payment and having their service cut-off. Whether you’re a consumer or a merchant, automated payments are easier for everyone involved.

When it comes to processing credit cards, there are several components at play. In order to accept and process credit card payments, you’re going to need a merchant account, which is essentially a bank account that allows businesses to accept payments in multiple ways including debit or credit cards. You’re also going to need a payment gateway: an e-commerce application service provider that authorizes credit card or direct payments processing before sending it on to your processor.

When researching these services, you may be tempted to get each of these components (merchant account, processor, gateway) a la carte because at first glance it seems to be more cost-effective. While this is sometimes the case, think of your credit card processing as a meal that you order at a restaurant. While there’s a definitely a chance that you’ll be able to put together a fantastic spread by ordering a selection of different sides and mains, it’s important to keep in mind that the complete meals on the menu are put together in a certain way for a reason — because each component works and complements the other.

The same can be said about credit card processing. Here are a few of the advantages of getting your merchant account, payment processor and gateway from the same company:

  1. It makes set up so much easier.

If your goal is to set up your business as easily and quickly as possible, getting these services from the same provider is advantageous. Each component exists within the same system and therefore is designed to work together from the get-go. This can save you a lot of time and hassle during the setup process.

  1. You only have one customer service department to deal with.

When you’re running your own business, time is money. Imagine something goes wrong with your credit card system and you need to troubleshoot. If you’ve purchased these services each from a separate provider, you’re going to have to deal with three different customer service departments in order to pinpoint the issue. While you’re interfacing with these different companies, you can’t process cards and you miss out on sales (costing you more money in the process).

  1. You won’t have to stress over updates.

When you have all of these services under one provider, your merchant account, processing, and gateway are going to continue to work well together, even when there are new updates released.

On the other hand, if you’ve purchased everything a la carte, there’s a good chance that not all updates will be seamless. In fact, all it takes is one security update to crash your whole system. There’s going to be issues that need to be worked out and you’re going to have to spend a lot of unnecessary time trying to work things out (see #2) which will once again lead to a potential loss of revenue and/or negative customer experience.

  1. You’re not going to save money in the long-run.

To recap, while the individual components may seem cheaper initially when you buy them from different providers, the time you’ll spend trying to make these separate entities work together is going to cost your business more overall. Most service providers offer special bundle deals which will save you money and sanity in the long run.

Last month, I was in New York City preparing to watch the marathon with a friend. The air was delightfully crisp, so my friend and I decided to head over to Starbucks to grab a beverage to keep us warm while we watched the race.

At the counter, I placed my order only to realize when I went to pay that I’d forgotten to slip my wallet into my purse. In the middle of my friend offering to buy my coffee, I remembered something. I pulled out my phone, quickly updated my Apple Pay and made my purchase by scanning my phone. I couldn’t believe how incredibly easy and convenient the whole process was.

This was the first time I made a purchase using my digital wallet, but I doubt it will be the last. I’m not the only consumer that feels this way. In the past year, consumers have become a lot more comfortable with alternative payment methods.

If you want your business to stay relevant, you need to adapt to your customers’ evolving payment needs. To get you up to speed, here are a few payment processing trends that are sure to be huge in 2019.

  1. Predominance of Mobile Wallets.

The beauty of mobile payments is they tend to be quicker and more secure than paying by cash or card. Credit card information stored in a mobile wallet is encrypted and requires the consumer to unlock their device and/or use a passcode or fingerprint. Projections show that Apple Pay and Google Wallet will continue to vie for the top spot into 2019 and beyond, but Android Pay and Samsung Pay still have their share of supporters.

  1. Increased popularity of mPOS devices.

Any smartphone or tablet can be transformed into an mPOS (mobile POS) with a downloadable mobile app. In 2019, you’re going to see a lot more mPOS devices popping up in a variety of different contexts. According to Total System Services, approximately 27.7 million mPOS devices will be in circulation in the U.S. within the next three years (a ten-fold increase since 2014).

  1. Biometric authentication.

Biometric authentication – such as using a fingerprint to verify and access a mobile wallet – is slated to be another big trend going forward in 2019. Apple Pay and Samsung Pay currently both use fingerprint identification, but not all platforms offer the same level of security. But soon this will change. Overall the technology is a lot more cost-effective, especially when it comes to preventing fraud and other security breaches, so expect to see a lot more of it in 2019.

  1. Improved customer experience.

The exciting thing about these growing trends is that they all contribute to a better customer experience. Providing the option to pay through mobile or via mPOS allows you to service your customers right where they are while providing a checkout service that’s swifter and more secure than ever before.

When it comes to choosing a credit card processor, businesses are treated differently based on the perceived level of risk they present. Enter the high-risk merchant. Your business could be identified as high risk for the following reasons:

  • Excessive number of charge-backs
  • Poor credit of business owner
  • Being a new business
  • Having a previously closed merchant account

However, often businesses are deemed high risk based solely on the industry in which they operate. Here are some business categories that are generally deemed high-risk:

  • 1-800 chat sites
  • Airlines or airplane charters
  • All adult-oriented merchants
  • Cannabis or drug-related paraphernalia
  • Cigarettes, e-cigarettes, or vape shops
  • Credit protection, counseling, or debt repair services
  • Debt collection services
  • Discount health or medical care programs
  • Debt consolidation services
  • High average ticket sales
  • Multi-level marketing (MLM) sales tactics
  • Non-US citizens doing business in the United States
  • Offshore corporation establishment services
  • Replica handbags, watches, wallets, sunglasses, etc.
  • Self-defense, pepper spray, mace, etc.
  • Vitamin and supplement sales
  • VoIP services
  • Weapons of any kind

As a high-risk merchant, credit card processing comes with a unique set of challenges. You’ll want to make sure you have a credit card processor that is equipped to deal with your specific business needs.

While the perfect payment processor may take some time to find, here’s what you should be looking for if you’re a high risk merchant.

Knowledgeable, excellent customer service.

Just because you’re classified as a high-risk merchant doesn’t mean you should settle for a sub-par credit card processing company. In fact, it’s more important than ever that you find a company that has a strong track record for dealing fairly and equitably with their clients. They should provide outstanding customer support, reasonable and transparent pricing and easy to understand billing practices. They also shouldn’t require you to commit to lengthy contracts in order to sign on.

Charge-back mitigation programs.

As mentioned before, charge-backs are used to dispute a credit card purchase and get a refund for the card holder. A charge-back voids a credit card card purchase by withdrawing funds that were previously deposited into the merchant’s bank account and applying a credit to the consumer’s credit card. Instead of seeking a refund from the merchant, the consumer contacts the credit card company and requests a refund. If the claim is determined to be valid, the bank then forcibly removes the money from the merchant’s bank account.

If you’re a high-risk merchant — for example, a private jet company that’s subject to nature’s elements or company that relies on a free trial followed by an automated renewal — you’re going to have a higher number of charge-backs. While charge-backs are a fact of doing business, they still cost you money. That’s why you’ll want to look for a credit card processing company that offers a charge-back mitigation program. Usually this involves working with a partner organization that will help work with the consumer to mitigate and reduce the number of charge-backs you receive.

Experience dealing with merchants in your particular industry.

If you’re a high-risk merchant, the right payment processor will have a clear understanding of how your business and industry works. This could include anything from support with high-dollar transactions to knowledge of the pharmaceutical or cannabis industry. For example, if you’re a private chartered jet company, you’ll want to work with a company that understands that charge-backs are a common occurrence in your business and can work with customers in case flights are delayed or cancelled.

Look for companies that have specific programs designed to address the unique and specific needs of your business. You might even find payment processing companies that specifically work with your industry. Take for example the cannabis industry — over the past few years there’s been an explosion of payment processing companies that are dedicated to addressing the unique needs of this industry.

Scalable services and pricing to grow with your business and meet your needs along the way.

Your business isn’t static, and the services offered by your payment processing company shouldn’t be either. High-risk merchants are especially vulnerable to predatory processing companies that charge excessively high fees and require long contracts. You want a processor that’s going to help address the changing needs of your business and grow with you. This means choosing a processor that offers the services you need and has a strong ethical track record.