Should you get an Merchant account based on interchange-plus or subscription pricing?The credit card processing industry as a whole is evolving rapidly and for the better. Just a few years ago, getting a flat-rate merchant account or signing up for a subscription wasn’t even a thing.  Over the last decade, the industry has begun to offer merchants more options for how to pay for their merchant services. Merchants can choose from Tiered Pricing, Interchange-plus pricing, flat-rate merchant accounts, and now merchant account subscription or “membership” plans. 

These new pricing models are meant to give merchants more options and more control over what they pay to accept credit cards. But having more options can make deciding which is right for your business more difficult. Business owners rarely have the time to learn how to understand their credit card processing rates. Nor do they want to. They just want to accept payments for their goods and not have it cost an arm and a leg. And all of these different plans can just make it more confusing for the merchant.

Merchant Services have come a long way since the days of Tiered Pricing.

The credit card processing industry has earned a reputation for overcharging and taking advantage of merchants for their own profit. There’s a reason merchants referred to the salesmen as “the used car salesmen of the financial industry.”

But times are changing. There are a few great merchant service providers working hard to change the narrative. This has resulted in new, more truthful, and transparent ways to charge merchants for the credit card transactions they process. 

A decade ago, most processors would only bill merchants for their merchant services through the Tiered Pricing model. In fact, some processors would not allow a merchant services provider to bill a merchant with Interchange-plus pricing. Now, Interchange-plus pricing is the norm and considered the most truthful and transparent pricing model available. 

We’ve spent quite a bit of time here on the site educating merchants on Interchange-Plus pricing. As well as explaining why we believe it is the most transparent pricing model. But today, let’s dive into one of the newest pricing models a few merchant services providers are offering. This pricing model is usually referred to as a merchant account membership plan. Some processors will also call it a merchant account subscription plan.  It seems very simple and straightforward and might have you wondering if it’s right for your business. 

Don’t confuse a merchant account membership plan with flat-rate pricing or a subscription/membership merchant account.

This subscription pricing model for merchant accounts is one of the newest to be offered in the industry. In fact, there are only a few reputable merchant services providers offering it. And because of this, the name can be a bit confusing. This is not a merchant account for businesses that offer memberships, like a gym. When we say “merchant account subscription plan” we don’t mean a merchant account for businesses that offer subscriptions, like Dollar Shave Club. But, if you google membership merchant account or subscription merchant account, that’s what will top the list.

Those are merchant accounts for businesses that need to process recurring billing transactions. They are a type of high-risk merchant account, but they differ greatly from what we’re talking about here.

A Membership Plan or Subscription Pricing model is also not the same as flat-rate processing, such as with Square. With flat-rate pricing, your price is based on a percentage of your processing volume. With subscription pricing, the merchant pays a flat monthly fee that is not based on volume. Well, not exactly. Let’s dive in.

What is a merchant account membership plan and how does it work?Subscription pricing merchant account

With this type of pricing, you won’t pay a mark-up based on a percentage of your processing volume.  Instead of being quoted a percentage rate mark-up for processing, merchants pay one monthly fee + a per-transaction fee. 

Providers offer different membership levels ranging anywhere from $49/mo to $199/mo. With a subscription plan, you don’t choose the membership level that’s the most cost-effective for your business. Your membership level is based on the total monthly volume you process.

So, for example, level one is for merchants processing under $25,000/mo. Level one costs $49/mo + 0.15 cents/transaction. Level two is for merchants processing from $25,000/mo up to $50,000/ mo. This next level would cost $99/mo + 0.10 cents/transaction. And so on.

Let’s keep in mind that merchants are not just paying the one flat monthly membership fee. Merchants on a membership plan are still paying interchange fees + a per-transaction fee. Interchange fees are the fees charged by the card brands (Visa) and the card-issuing banks (Chase). They are the base costs of accepting credit cards and they make up the majority of your costs. Interchange fees are the same for every merchant, and every merchant must pay them if they’re accepting credit cards. 

So when you’re comparing pricing models, remember that it’s the mark-up the merchant service provider charges you that you need to be concerned with.

Of all the pricing models used by merchant service providers, this is probably the easiest to understand. Just because it’s easy to understand doesn’t mean it’s always the most cost-effective. Like anything else, it could be a great option for some merchants and not for others.

There are both pros and cons of subscription pricing for merchant accounts.

Merchant services are very merchant specific. There are a lot of considerations that go into finding and quoting the best solution for a particular business. 

As with anything, there are pros and cons to a subscription pricing model for merchant accounts. Merchants should consider all aspects when deciding if this type of pricing is right for their business.

Pros:

  • Easy to understand pricing with easy-to-read statements. 
  • Typically works well for businesses that process high volume with many transactions. 
  • Good for large ticket items since your fee is not based on volume of the purchase.
  • Good for merchants that process fewer transactions per month.
  • No long-term contracts or early termination fees. Usually, but also double check your contract before signing..

Cons:

  • Most only accept U.S. based businesses.
  • Most will not board high-risk businesses. 
  • The fee isn’t always the whole fee- some may charge additional fees for services such as processing ACH transactions or same-day funding.
  • Some require you to rent your credit card terminal, and/or mobile card reader.
  • Automatically moved to the higher price membership level if you exceed the cap on processing volume in a month.
  • May have to call customer service to physically ask to be lowered again to the lesser membership level if going over your volume was a one-time thing.

Merchant account membership plan vs Interchange Plus pricingThere’s more to a merchant account solution than the rate.

On the surface, the idea of paying one rate every month to accept credit cards seems like a no-brainer. But there is a lot you have to take into account that may not be obvious. 

Every vendor is different. You have to make sure you’re getting all the software, hardware, and features needed to run your business. Does your merchant account come with a terminal or gateway? If so great.

Merchants usually only get these with the higher level membership plans. You may have to turn to a third-party vendor, which will end up costing you additional fees. And renting a terminal from the provider is also an additional ongoing cost. 

If you’re going to compare pricing, you must take all costs into account, not just the monthly rate. That is the only way to see if this type of merchant account is the most cost-effective, or right for your business. 

Whether it is a good deal depends on how much you process and how many transactions you process. Remember, the merchant processing $25k a month pays the same fee as the merchant processing $50k, or twice as much.  And of course, that also depends on how many transactions you process x the per-transaction fee. So, who gets the better deal – the merchant processing at the low end of the level or the one on the high end? As you can see it might be great for the merchant processing volumes at the top of the membership level and not so great for the merchant at the low end. 

Is a subscription or membership merchant account right for your business? 

Credit card processing is very business-specific. I wish we could say this type of pricing is good for these businesses and that type of pricing is great for others. But it doesn’t work that way. 

We do believe that pricing should be completely transparent for the merchant. We believe that you should understand what you’re paying and there should not be any sneaky tactics or hidden costs.

But what type of merchant account a business gets, who they get it with, and the final rates and fees all relate to and differ for each specific business. 

Of course, rates will depend on your average monthly processing volume. But you also must take into account the average ticket price and the number of transactions. What is your customer demographic and what types of cards are you accepting most often? Do you accept mostly basic credit cards or does your clientele all carry American Express black cards? The type of cards you accept has an impact on your overall costs.  How are you taking those credit cards? Are you accepting mostly card-present payments, or do you take them online or through a virtual terminal? 

Industry type also plays a role- is it high-risk? Do you operate Internationally? Do you have a high incidence of chargebacks or attract fraud? If your business is considered high-risk, a subscription-based processor won’t take you anyway.Merchant account memberships

There are many factors that come in to play when finding the right solution and quoting a price for a merchant’s credit card processing. And sometimes the cheapest isn’t the best for your future growth. Business owners also need to consider how important customer service is for their business. Attentive customer service and enhanced features could be integral to your future growth and success.

It sounds cliche to say that no two businesses are alike. But, it’s true. 

What we do at Bankcard Brokers:

We believe our merchant clients deserve a credit card processing solution that’s both reliable and affordable.  That’s why we offer our clients Interchange Plus pricing because we believe it truly is the most transparent pricing model. We don’t require long-term contracts and we won’t charge you early termination fees. 

When we quote a business for their processing needs, we expect to earn their business for life. We can’t do that without offering the best solution for their needs and backing it up with stellar customer service.

The only way to know what solution is right for your business is to do the math. We’d be happy to sit down and do the math with you. We can help you calculate your rates, and we’ll even compare them to a monthly rate subscription plan merchant account.

Let us show you what it means to “Experience the Bankcard Brokers Difference!”

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