The Pros and Cons of Flat Fee Merchant Services

Summary: Flat fee merchant services offer a simple, predictable cost structure for credit card processing but may include significant markups. Ideal for smaller businesses with lower transaction volumes. Swipesum helps merchants find optimal providers and negotiate fees.

Main Points:

• Types of Pricing Models: Interchange, Tiered Pricing, Flat Fee.

• Pros: Simplicity, predictability, easier card acceptance, beneficial for smaller businesses.

• Cons: Potential higher costs, significant markups, not ideal for high transaction volumes.

• Recommendation: Best for small businesses; negotiation is key for cost efficiency.

It’s a simple concept: If your business accepts credit and debit cards, it must pay for payment processing and merchant services. There’s no way to work around that need. Card payments require processing, and the cost of that workflow largely falls on merchants.

For many businesses, accepting card payments is a foundational requirement. The Federal Reserve Bank of Atlanta points out that, as of 2022, 93% of adult US consumers had at least one credit or debit card.  

Whether it’s giving customers convenience in person or offering the easiest path to payments online, it’s difficult (and costly) for most business-to-consumer companies to not accept card payments.

What’s more complex is exactly how a business chooses to pay for merchant services and credit card processing. There are three major pricing models for merchant services and plenty of differences within those models. Additionally, businesses can negotiate many fees with their merchant services provider, leading to even more variation.

Swipesum helps merchants just like you find the optimal strategy for managing card payments and their associated costs. Our experienced and knowledgeable consultants will carefully review your individual business needs. Then, they’ll recommend the best possible providers, tech, and tools, as well as negotiate for lower fees on your behalf.

Ready to transform your approach to card payments? We’ll help you optimize your payments workflow at no additional cost to your business. Book your free consultation!

Want to learn more about flat fee merchant processing and services? Keep reading to find out about the pros and cons of this cost model.

What Are Flat Rate Merchant Services? Explanation, Pros and Cons

In the big picture, merchant services providers use one of three major models to structure their costs for processing credit cards. They are:

1. Interchange, also called Interchange Plus or Cost Plus. The Interchange cost model has three major elements: a percentage of the total volume of the sale, a flat fee per transaction, and the merchant services provider’s markup.

2. Tiered pricing. Tiered pricing is all about the details. There are many potential costs involved that depend on the specific type of card used and how it’s accepted. Tiered pricing is known for being especially complex and often a higher-cost option, especially for smaller businesses.

3. Flat fee payment processing. Flat rate merchant fees are exactly that — they’re based on fixed costs. Common flat fee programs for merchant services include a fixed per-transaction fee, a consistent percentage charged for every transaction, and a combination of the two.

Additionally, every merchant services provider charges some combination of fees for various services provided beyond basic card processing. These can include fees for batch processing transactions, providing a printed bill, chargebacks, and many other circumstances.

What are the Pros of Flat Rate Merchant Fees?

Flat fee merchant services are easy to understand, both conceptually and on your monthly statement (at least compared to other merchant services pricing models). There are fewer obscure or hidden fees involved. It’s easy to both track the cost of merchant services delivered with this pricing model and predict what future costs could be.  

It’s also more difficult for providers to overcharge merchants with this pricing structure due to its simplicity.  

Flat fee payment processing also makes it easier to accept all types of credit cards. Why? Because the costs won’t change based on details like the type of card or how it’s processed by the merchant.

Overall, flat rate processing can be a great choice for smaller businesses, especially those with a relatively low volume of card-based transactions. That’s due to the lower costs associated with a reduced volume of card transactions that need to be processed.

What are the Cons of Flat Fee Merchant Services?

Remember that simplicity in card processing does not automatically equal transparency or the lowest possible cost. Flat rate pricing is easy to understand but can also include a significant markup for each credit card transaction.

That means higher costs for your business in the long run. Those costs can be worth it if they’re not excessive and your merchant services provider helps your business beyond the basics of processing card transactions. However, higher costs can also harm your business when there isn’t additional value offered in return.

Companies that consistently have a high volume of card transactions can easily end up paying more for payment processing. The fixed percentages mean costs can increase significantly along with the volume of transactions. The processor’s markup generally won’t change or be reduced in the merchant’s favor due to a high volume of transactions.

Do You Recommend Flat Fee Merchant Services?

In general, we recommend flat fee merchant services for some businesses, especially smaller businesses that don’t have a high card transaction volume.  

The pricing structure for flat fee merchant services is simple if not particularly transparent. Providers that offer this option, including major industry players like Square and Stripe, tend not to charge as many obscure or unexpected fees as in other models.

Remember that the number of obscure or unexpected fees charged and the total cost of merchant services don’t always perfectly align. Flat fee merchant services providers are businesses just like any other provider. They want to make money, and they’ll use other strategies to earn that profit.

This is where negotiating with your payment provider can help. Swipesum helps your company by taking the lead in negotiations with credit card processors. Reducing the fixed costs of flat rate credit card processing simply makes financial sense for your business.

Additionally and crucially, we carefully review your company’s operations to identify individual needs in payment processing. That review empowers our consultants to recommend providers and tools that align with the best interests of your business. We’ll find the right balance between the cost of payment processing, the level of service and support providers offer, and your business’s priorities.

Change your company’s approach to payment processing for the better. Set up your free consultation today to save money and improve your overall payments experience.