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For many businesses, credit card processing fees account for their fourth largest expense (behind payroll, rent, and cost of goods sold). Because there are many types of processing fees, it can be difficult to figure out exactly how much you’re paying and why. At Gravity, we try to simplify this process as much as possible, primarily by offering your business a fair and transparent pricing structure.

There are three types of credit card fees:

  • Processor fees: these are the fees your processor (such as Gravity) charges for the services they provide.
  • Card-brand fees: these fees are charged and set by the card brands (Visa, Mastercard, American Express, etc.)
  • Interchange: this fee is paid to the bank that issues the card used. It represents the largest portion (usually 70-80%)  of your processing costs.

Your processor collects all three of these fees but does not control the pricing of the card-brand or interchange fees (aka “wholesale fees”), which are set by the card brands and card-issuing banks, respectively. For more on these different types of fees, check out my blog post and webinar on the subject here

The 3 Types of Pricing Structures

There are three main types of pricing structures your processor can use, though Gravity only uses two:

  • Cost-Plus: This is Gravity’s preferred pricing structure because it provides the most opportunity for cost savings and the most transparency. With a cost-plus structure, you pay the wholesale fees that Gravity is responsible for collecting on behalf of the banks and card brands as well as a flat fee to cover the services we provide. Because card brand and interchange fees will change depending on what types of cards you accept, the amount you pay each month will likely fluctuate. You can also see exactly how much you’re paying in each type of fee because it will be broken out on your monthly credit card statements. 
    Example of cost-plus pricing model over three months of $10,000 sales.
  • Flat Rate: A flat-rate model is exactly what it sounds like. Instead of paying a different rate every month depending on your wholesale costs, Gravity will charge you a flat fee each month that covers all of the different fee types. This is a good option if you value consistency, but because the rate doesn’t change, you’ll likely lose out on some of the savings you would have under a cost-plus model.
    Example of flat-rate pricing model over three months of $10,000 sales.
  • Tiered: Gravity does not use tiered pricing models for its clients, but many other processors do. Under a tiered pricing model, your processor sets different rates depending on the types of cards accepted. But because every processor is different and there are no standards dictating what types of rates can be charged for each type of card, processors are able to charge you way more than necessary for certain card types. To make matters worse, many processors will advertise a very low rate that applies to certain cards without telling you how much they charge for the other types of cards your business is likely to accept. Under a cost-plus or flat-rate structure, you’re likely to pay an effective monthly rate of between 2-3% (maybe a little higher depending on the type of business you run). But under a tiered model you could end up paying as high as 7% because of all the extra fees tacked on. If you’re on a tiered model under your current processor, give us a call to find out how much we can save you.

Credit card processing is confusing, so if you have any questions about the type of pricing model you’re on and/or want to consider a different pricing option, give us a call at 866-701-4700 to find out more.

By Ashlie Blaske, Business Analyst

This post was adapted from “Credit Card Processing 101: How to Understand Credit Card Pricing Structures,” part of the free Gravity Talks webinar program. For more information on past and upcoming webinars, visit www.gravitypayments.com/talks.

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