Flat Rate Pricing and Interchange Plus Pricing are two of the most important payment concepts. Well, it is quite evident that technology has changed the entire ecosystem of the payment industry. If we consider the present situation, we will get to see that people are giving more preference to online and cashless transactions. Moreover, business owners are making new strategies to cope up with the present situation. With the help of advanced payment solutions, they can now accept credit card payments.
Now, if we talk about the small businessmen who generally their business offline, the present scenario has become very difficult for them. COVID-19 has flattened the growth of small businesses and therefore, they need to make changes and shift to online business. We at International Payment Solutions are very impressed to see the determined endeavor of the small businessmen. Therefore, we have brought some innovative payment solutions for them. However, understanding the payment solutions will not be enough for small businessmen as these are just hardware. Merchants will be able to accept credit cards through these devices.
If we talk about the payment industry, it is actually filled with various credit card processing price structures. Each credit card pricing structure has its own complicated pricing system. We have already made a brief breakdown of different kinds of credit card pricing structures. Well, here, we will talk about the differences between flat rate pricing and interchange-plus pricing.
Different kinds of pricing structures really make the online business difficult and therefore, we want our merchants to understand these things effectively. But, before getting into the pricing structures, one must know how the credit card transactions work.
Credit card transaction is a real-time process and there are certain aspects inextricably related to it. Although it is a real-time process, the transaction amount does not get credited instantly in the merchant’s account. We have elaborated the process below. So, have a look at the following points:
The customer initiates the credit card transaction
After that, the merchant processor passes the information to the credit card network
Credit card network shares the information with the credit card issuing bank
Now, the credit card issuing bank checks the credit available in the cardholder’s account. Depending upon the available credit, the credit card issuing ban either accepts or declines the transactions and shares the information with the credit card brand.
The credit card brand passes the information to the credit card processor and thus a transaction is completed.
Now, you have probably understood that there are many organizations involved in credit card transactions and therefore, the merchant has to pay a certain amount to the merchant processor solution and it is generally called credit card processing price. So, when you pair your business with a payment processor, the company mainly offers two different types of credit card processing price- flat rate pricing structure and interchange plus pricing structure.
Flat Rate Pricing Structure
Flat rate pricing structure is one of the most popular credit card processing pricing structures and it eliminates all the complexities that merchants generally experience in interchange-plus pricing structure. However, everything has positive as well as negative aspects and flat rate pricing structure is not an exception. We have elaborated the flat rate pricing structure so that you can understand it properly.
In the case of a flat rate pricing structure, the merchant processor takes a fixed amount on each transaction. It does not matter what payment method customer is using to make the online transactions. The credit card processing fees will be the same. The merchant processor generally takes between 2.80% and 3.00 on each online transaction. Flat rate pricing structure makes the entire credit card processing structure easy to understand. Therefore, merchants who find difficulties to understand the complicated online pricing structure prefer this.
Is It Suitable For Small Businesses?
The credit card processing fee consists of interchange fees, card brand fees and payment processor margin. Interchange fees and card brand fees are taken by the credit card issuing bank and credit card network respectively. Therefore, the credit card processor does not have any control over it. But, they can make changes in the payment processor margin.
Well, the interchange rate depends upon the credit card you as a merchant is accepting. If you accept a high-reward credit card, it can be on the higher side and if it is a low-value credit card, merchants need to pay a minimal interchange rate. If you go for a flat rate, you have to pay a fixed rate on each transaction. It can be higher than the actual rate and so, if you have just entered into the online business and facing difficulties to understand the online pricing structure, you can go with flat-rate pricing. Otherwise, you should go for interchange-plus pricing.
Interchange Plus Pricing
Interchange plus pricing is quite complicated. It refers to a minimal fee that the merchant processor takes on top of the interchange rate. If merchants go with interchange-plus pricing, the profit margin of the business increases. We have a separate article on our interchange plus pricing structure, you can check to know more about it.
Not An IPS Merchant?
International Payment Solutions is one of the best merchant processor solutions and if you want to accept credit card payments online, you can pair your business with IPS. IPS has advanced payment solutions that will help you to take your business online. So, what are you waiting for? Get in touch with us.