There are three types of credit card fees:
- Processor fees: This is the fee your processor (like Gravity) charges for making sure money gets transferred from your customer’s bank to your business. Your rate will change depending on the processor you use and the type of pricing plan you’re on, but processing fees should only comprise a small percentage of your overall credit card fees.
- Card brand fees: This fee is assessed by the various card brands (e.g. Visa, Mastercard, Discover, American Express, etc.). These fees are the same no matter which processor you use, though different card brands charge different fees. You can find these fees by reviewing your processing statements or looking them up online.
- Interchange: The interchange (aka “bank fee”) is assessed by the bank that issued the credit card used in a specific transaction. This is by far the largest fee your business will pay for running credit cards and, like card brand fees, it does not change depending on your processor.
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.
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 Pricing
You pay the wholesale fees that Gravity Payments 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.
Flat Rate Pricing
A flat-rate model is exactly what it sounds like. Instead of paying a different rate every month depending on your wholesale costs, Gravity Payments 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.
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.