We have been asked this question hundreds of time since Square introduced its flat rate credit card processing system. The answer is: It depends. I know - not what you are looking for - but it really does depend on a few factors: the size of your average transaction and how much you actually process through your merchant account every month.

Essentially the higher your average sale and the more you process the worse the Square 2.75% deal becomes for a merchant. Take a look below for a breakdown:

Flat Fee vs. Traditional Pricing Structure

Let’s use the following numbers for simplicity:

  • Flat fee swiped credit or debit card: 2.75%
  • Swiped debit card without a PIN (including markups + processor profit): 0.50% + $0.32 per transaction
  • Swiped credit card (including markups + processor profit): 1.75% + $0.20 per transaction

(There are actually hundreds of different potential costs as part of something called interchange - these 2 are just some of the most common ones)

Cost Comparison: $100 Sale

Using the numbers above, here’s what a $100 transaction costs:

  • Flat fee: $2.75
  • Debit: $0.82
  • Credit: $1.95

Clearly, flat fee pricing is a horrible deal at this sale amount. As the average sale increases, the flat fee rate becomes even worse.

 Cost Comparison: $1,000 Sale

  • Flat fee: $27.50
  • Debit: $5.32
  • Credit: $17.70

It should be obvious that any company processing large transaction amounts should NOT be using a flat fee rate system.

Who Is Flat Fee Processing Actually Good For?

Small-ticket clients.

Let’s look at what happens when the average sale is $10:

  • Flat fee: $0.28
  • Debit: $0.33
  • Credit: $0.38

This doesn’t look like a lot of savings per transaction, but over hundreds or thousands of transactions, the savings can add up significantly. The flat fee system is typically a good deal up until the client runs an average ticket amount of about $20.

Anything above that and they should really consider setting up a traditional merchant account to get the best deal possible.

How Monthly Volume Affects Whether Flat Fee Makes Sense

Another factor to consider is how much a business processes monthly.

  • Under $1,000 per month:
    Flat fee is usually a good deal because the merchant does not pay a monthly fee.
  • Over $1,000 per month:
    A traditional merchant account often becomes the better deal, since the monthly fee is offset by the savings from lower processing costs.

A flat fee processing deal is good for low volume (under $1000 a month) and low average ticket (under $20) clients. Any business that does not meet this criteria should set up a regular merchant account to get the best deal possible.