Credit card merchant quotes can be very deceiving as a lot of quotes out there are “Teaser” rates. They rope you in with what looks to be great pricing, little to a business’s knowledge that the pricing is terrible and you end up paying 3.5% in credit card merchant fees per month. You want to avoid this at all costs.

Credit card merchant quotes can resemble the text below:

• Keyed-in Rate: 3.69% + $.19
• Swiped Rate: 2.69% + $.19
• PCI Compliance Fee: $19.955
• Early Termination Fee: $495.00

The problem with these credit card merchant quotes is that they are not transparent and are the root of the hidden fee conception that gives the credit card merchant industry a bad reputation.

As we all know, or at least should know, credit card interchange fees are the fees associated with every debit card and credit card circulating in the world. These rates are set by the card networks (Visa, MC, Discover, AMEX are the 4 main branded ones), and there is nothing anyone can do about them (unless its level 2 or 3 processing but that is for a later time). 

In credit card processing, you want to ensure you are receiving the true cost of the interchange fees and then a service markup by your bank or credit card merchant provider. The below credit card merchant pricing structures will show you the pros and cons of both, and why some are more cost effective than others.

Educating yourself on how credit card merchant fee pricing structures work, will allow you pick the correct pricing structure and save your business a substantial amount of money.

Different Credit Card Processing Pricing Structures

Most businesses have no idea that there are different pricing structures within credit card processing. They hear the lowest credit card processing rate come out of a sales reps mouth, and that is the provider they are going with. With Interchange rates constantly changing, different credit card processing pricing structures have been created to account for this ever moving industry. See what is best for you business below:

• Tiered/Bundled 
• Flat Rate 
• BackBill/ERR 
• Subscription/Membership
• Interchange Plus Pricing

1 – Tiered/Bundled Pricing: The WORST pricing structure in credit card processing. Stay as far away as possible from this one. A high level overview of how it works is a credit card processor gives you 3 different rates for Qualified (1.75%), Mid-Qualified (2.45%), and Non-Qualified transactions (3.25%). Depending on the card you take, dictates which bucket that card will fall under. The bulk of cards these days end up in either the Mid-Qualified bucket or Non-Qualified bucket. Very basic, non rewards cards are the only ones that will fall in the Qualified bucket. 

Example: A Tiered/Bundled pricing model would look like this: Qualified Rate: 1.75% Mid Qualified Rate: 2.25% Non Qualified Rate: 3.40%. The PROBLEM with  this structure is that 1. The processor dictates the bucket each card falls under and the rate of said bucket. 2. The actual Interchange rate of said card is more often than not significantly lower than what the bucket is tagged at. What this means? Your provider is making money hand over fist.

The Interchange rate for a debit card is often 0.05% + $0.22 per transaction. If you are on tiered/bundled pricing, the processor will categorize this card in a Qualified bucket, charging you the Qualified rate (1.75%). 1.75% is a significantly more than 0.05% + $0.22/transaction.

2 – Flat Rate Pricing: The SECOND WORST pricing structure in credit card processing. The name of the pricing structure is pretty self explanatory. Your business is charged a set rate for every transaction you accept, regardless of the type of card or how you process the transaction. Similar to the example of Tiered/Bundled pricing, you are not charged the true cost of the card you accept from your customer. Instead, you are charged the flat rate, and your credit card processing company makes all the profit over the true interchange cost of your customer’s card. STAY AWAY from this structure as well. Although it seams transparent and simple, like what the Stripe’s or PayPal’s of the world want you to think, it is not cost effective for your business.

Example: The Interchange rate for a debit card is often 0.05% + $0.22/transaction. If you are on Flat Rate pricing, the processor will charge you a flat fee of 2.75%. That means credit card processor makes in profit the difference of 2.75% and the cost of the interchange rate of the card your business accepted. This can be an extremely lucrative pricing model for credit card processing companies. Stay away at all costs.

3 – BackBill/ERR Pricing: The TIED FOR SECOND WORST non cost effective pricing structure, although this one is more out dated than the others. Your credit card processing provider will set your ERR rate during the application process. An added headache to this pricing model is the reporting to see the true rates and fees you were charged on a given month does not display on your monthly credit card merchant statements until the following month. Hence the “BackBill” name. For this example, let’s stick with the 1.75% mentioned in the Tiered Pricing model above.

Example: As a business, any credit or debit card you accept from your customers that has an interchange rate LOWER than 1.75%, your business is charged the 1.75%. Your credit card processing provider makes the difference of the two in profit. Any credit or debit card you accept from your customers that has an interchange rate HIGHER than 1.75%, you are charged 1.75% PLUS an additional surcharge that was determined by your credit card processing provider.

4 – Subscription/Membership Pricing: This is a relatively new pricing structure within the credit card processing industry. It can be cost effective depending on your monthly volume of sales and the subscription cost your credit card processing provider sets you up with. A high level of how it works is your merchant provider charges a flat monthly fee (subscription), a per transaction cost ($0.05 – $0.30), and passes along the true interchange cost of the card you accept from your customers.

Example: A subscription pricing model would be as follows: Interchange Rates + 0.00% + $0.15 per transaction + a $199.00 monthly Fee. At times, it can be cost effective for your business because you know what the processor is making every month as far as their profit. The issue and disadvantage of this model is that based on your sales volume, the merchant may increase the fixed membership fee, which can end up cost much more than a competitive pricing structure. They may also increase the markup per transaction cost as well. Although a transparent pricing model, it will depend on your needs and monthly sales volume.  

5 – Interchange Plus Pricing: You always save the BEST for last. Interchange Plus Pricing is by far the most transparent and cost effective pricing structure within the payment industry. High level, you are charged the true interchange rates set by the card networks, in addition to the true mark up costs the credit card processing provider charges you. If you are looking to save the most amount of money and have fair and transparent pricing, this is the route you need to go!

Example: An Interchange Plus Pricing model would be as follows: Interchange Rates + 0.50% + $0.10 per transaction. To use the debit card example mentioned above, the interchange costs for a debit card is 0.05% + $0.22 per transaction. On Interchange Plus Pricing, you are charged the debit card interchange PLUS whatever the mark up costs of the credit card processing company. In this example, it is 0.50% + $0.10 per transaction.

The key takeaway here, and something we cannot stress enough, always ensure you are on Interchange Plus Pricing if you want to lower your credit card merchant fees. This pricing structure is by far the most transparent and cost effective pricing model within the credit card processing industry. Get a free audit here to see your current credit card pricing structure and potential savings.