Credit card merchant accounts can be a confusing topic. There are lots of questions around having a flat rate vs traditional payment processing account. Perhaps some of this ambiguity comes from all the varieties of names and nomenclature.
Payment processing can be called by a variety of different names: traditional merchant, interchange plus tiered pricing, flat rate and more.
Here we will break it down for you. If you have any questions and want to learn more, you can reach out to speak with us. We stand by our consultative approach and want to be seen as more than a credit card processor.
Our goal is transparency, sharing clarity by not only explaining the fees and costs, but also how rates can vary. The percentage can be different on each single transaction depending on the type of card a customer uses.
Flat Rate Account
A flat rate credit card and debit card processing account is pretty much what it sounds like. It is the most straightforward type of account. With this comes a cost. To be clear, this is not always the least expensive. Flat rate processing has become synonymous with the largest brands in the space: Square, PayPal, and Stripe.
They can do this because they aggregate many accounts to reduce risk of processing over a wide variety of businesses. Funds can take slightly longer to be deposited and there is limited support and customer service for single unit operators.
You can read a bit more about this here, to see some more of the benefits and negatives of this type of account.
Also, we are providing an example below to illustrate clearly one of the downsides of a flat rate account.
EXAMPLE: We recently had a client who initially sought simpler processing with a flat rate account. They shared the reason they came to us for a change. Just one $2,000 transaction paid via debit card, cost them $70.00 based on the flat rate of 3.5% offered by their provider. They knew from talking with us previously that they would have only paid the debit card processing fee of $2.50 on this sale. Realizing they had a lot of debit card customers, they were paying more than needed. Something they said stood out:
“It was predictable, but it was so much more expensive.”
Traditional Merchant Account
A traditional merchant account is dedicated for the specific business that is processing credit and debit card payments. NOTE: In some cases, like with TransAct, they offer additional services such as EFT and ACH or e-Check processing.
These accounts are underwritten, a process that can take 1 to 3 days, or up to a week depending on the length of time the business has been in operation. Funding is typically available in one day, though it can be longer on weekends, holidays or for American Express transactions. In some cases, same day funding is available.
The costs paid per transaction is typically lower than a flat rate account, but may include monthly account fees, set up costs and an early termination fee if a contract is required.
This is recommended for a business that wants to accept a variety of payment types and processes consistently through the month and year. Typically this is best for a business processing more than $50,000 per year.
Interchange Plus Tiered Pricing Account
Another type of account, which is more complicated to review each month. This can offer the overall lowest cost depending on annual sales volume, the types of cards processed and way each card is processed. This is known as an interchange plus, with tiered pricing and is the most transparent.
Each transaction is identified on the statement showing the processing fee and the rate assessed which is based on the credit card issuer and type of card. These accounts often have a maintenance fees and long term contracts.
As you can see, the variety of payment processing available to businesses today is broad. Making a decision on what type of account is not easy and should be done with research and consultative advice.
Ask yourself a few questions:
- How much will the business process?
- Why types of transactions will be needed?
- What are the average payments accepted?
- Does the provider offer training and ongoing support?
- Will the account require PCI compliance and does the provider offer guidance to ensure security?
- Are there any resources available for fighting a charge back?
All of these questions and more are typically discussed during a pre-account call with TransAct. If we are not right for you, we will point you in another direction. We know this industry can be complicated, and hope that we have clarified a few key issues on flat rate vs traditional merchant accounts. When it comes to choosing the right type of account, you need to make the right decision and an educated one.