Flat Rate Pricing: The Best Solution?
December 19th, 2018
One of the biggest complaints that are heard on the streets from merchants to their credit card processing companies is that they don’t understand their statements and there are too many fees. There are the “rates”, but then there are numerous transaction fees, authorization fees, PCI fees, annual fees, dues and assessments and more! Many statements can be over 10 pages long! Just for fees for 4 card brands! It’s like a cable bill! So many different categories and extra fees. Could flat rate pricing be the answer? Let’s look at the ways most accounts are priced.
Cost plus pricing or Interchange Plus pricing has become more of the norm in the industry. This pricing structure is great as merchants pay actual cost charged by Interchange. However, the devil is in the details even with this pricing structure. First there are hundreds of categories and what the merchant is charged depends on what kind of card the customer is carrying. So in the end, the effective rate can vary from month to month, even if the total volume of cards ran stays the same. Then, even if cost plus pricing is given, the basis points and transaction fee that is charged above this can be too much. Another thing that can be confusing is now processors are getting savvier or greedy and adding rate increases or padding actual Interchange so that merchants are actually paying more than what cost is.
Back in the early stages of the industry up to the early 2000’s, tiered pricing was the norm where there were usually 3 rates, qualified, mid and non-qualified. It was more simple, however could be misleading as many cards downgraded to the mid and non-qualified categories, which in the end were much more costly than the pitched qualified rate.
Which gets back to the topic at hand. Is flat rate pricing the best solution? Aggregate companies such as Square and Paypal started the trend a few years ago, but in most cases, the flat rate is 2.75%-3.5%, which for many businesses doing more than $10,000 a month can still be too much. We’re looking into a flat rate pricing solution. It would be labor intensive for the processor and for us to determine as we want to be aggressive in pricing, but also must take into account all fees and hundreds of rate categories that are charged by Interchange.
We’ve listened to merchants though, and they want simple, straight forward pricing. We are looking to test this out and hopefully offer a much easier solution along with the great service that has always been provided. 6 months statements would be needed to see trends and how exactly to price, but in the end, the merchant can be happy knowing exactly what they are going to pay at the end of the month and there’s no more smoke and mirrors or mysteries to the statement.
What do you think? If you are interested in becoming part of this, please reach out!