Flat Rate Pricing

What is Flat Rate Pricing?

Flat rate pricing is a newer evolution of credit card processing pricing. In this pricing structure, credit card processors charge merchants a predictable, flat rate for all transactions processed. Typically, this rate includes both a percentage of the transaction amount and a fixed per-transaction fee. For example, Stripe’s current flat rate pricing is 2.9% + $0.30 per transaction.

In the interchange plus model – another popular payment processing pricing structure – credit card processors charge merchants a varying interchange rate that covers the actual cost of running the transaction, plus a fixed markup amount. Flat rate pricing works differently in that the fee percentage charged per transaction doesn’t change based on the cost of processing the transaction -- it’s always fixed at the established flat rate.

• See: Interchange Plus Pricing

Understanding Flat Rate Pricing

Credit card processing companies advertise flat rate pricing as a simpler way of managing fees. How much it actually costs payment processors to run a given transaction varies based on factors such as:

• The type of card used (e.g. credit or debit)
• The card brand (e.g. Visa, Mastercard, Discover, or Amex)
• Where the payment is processed (e.g. in person or online)

If you’re a merchant on an interchange plus pricing plan, your payment processor has to break down each of these fees when identifying the interchange rate for any given transaction.

With a flat rate pricing model, however, credit card companies never have to go into this much detail, and instead charge a set, flat fee.

While this may seem better on a surface level, the flat rate pricing model almost always hurts merchant profitability. Merchants often end up paying significantly more fees to their payment processors than is necessary to cover the cost of running transactions. Keep this in mind when selecting a payment processor and agreeing to a pricing structure.

Flat Rate Pricing Example

A merchant chooses Stripe as their payment processor for ecommerce transactions. They sell an item that costs $30 to a customer who pays online using a Visa debit card. Stripe then charges the merchant their flat rate price of 2.9% + $0.30 for the transaction:

• 2.9%($30.00) + $0.30 = $1.17

In this example, the merchant has no insight into how much it cost Stripe to process this transaction. If the transaction only cost Stripe $.60 to run, the payment processor would have made a profit on the transaction, while the merchant lost out on potential revenue.