Flat Rates vs. Interchange Plus Rates: Which Is Better for You?

These days, being a good business owner requires a thorough understanding of credit card processing fees. If you’re not sure what’s the difference between flat rates and interchange plus rates, for example, there’s a decent chance you’re losing money on every transaction.

Want to ensure you’ll maximize your savings on payment fees? Here’s what makes the above two pricing models different and which one is better for your business.

Flat Rate Pricing

Flat rate pricing (also known as bundled pricing) is exactly what it sounds like. With a flat-rate payment processor, all your transactions fall under one rate. The only difference is that some processors will offer slightly different rates for online and in-person transactions.

Pros of Flat Rate

One big pro of flat rates is that it’s easy to understand. Getting into the nitty-gritty of processing fees can take a lot of research, particularly since some processors are non-transparent. Flat rate processing is simple and predictable: you pay the same amount of money every time.

Using flat rates may also allow you to accept elite credit cards without added costs. Some American Express cards, for instance, consistently charge more than you’d pay with flat rates.

Cons of Flat Rate

The simplicity of flat rate pricing comes at a cost. Since your processor hides their markup and interchange costs from you, it’s often hard to understand what exactly you’re paying for. This, in turn, makes it more difficult to shop around for the best price.

Using flat rates also means you’ll lose money on some types of transactions. All transactions have a different interchange rate, and many are less expensive than the flat rate you’d pay.

Interchange Plus Pricing

Interchange plus processing (or pass-through pricing) involves paying the interchange rate and the processor’s markup. Right now, this is the most popular alternative to flat rates. The biggest difference is that you’ll see the exact fees you’re paying on your monthly card statements.

Pros of Interchange Plus

The transparency interchange plus pricing offers can’t be overstated. When you can see what you’re paying for on every single transaction, it’s much easier to figure out if you’re paying a fair price for your processing services. Shopping around for the best price becomes easier as well.

Also, some transactions become more affordable with the interchange plus model. For instance, debit card transactions tend to be less expensive than their credit card counterparts.

Cons of Interchange Plus

Interchange plus processing is undeniably more complex. Since all transactions have different prices associated with them, it will be harder to predict your costs month over month.

Some payments, such as from the above American Express cards, have high interchange rates. Once you add the processor’s markup, the fee will set you back more than the flat rate model.

Which Processing Model Should You Choose?

If you run a smaller business operation, Interchange Plus tends to be a better option due to the fee breakdown it provides. This will give you valuable insight into where you should cut costs and make it easier to track your transaction details.

If your business has a high sale model or you have multiple store locations, flat rate pricing is usually better due to its predictability. Plus, a high-volume business is more likely to be able to negotiate lower flat rate fees with payment providers.

If you want to ensure your business is set up with the best payment processing solution. Get in touch with us to schedule a consultation with one of our knowledgeable account executives. Our priority is to help businesses grow and keep more of what they earn.

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