Is flat fee credit card processing at 2.75% a good deal?

Published 01/27/2017

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:

Lets use the following numbers for simplicity sake:

Flat fee swiped credit or debit card: 2.75%

Swiped debit card with out a pin number including all mark ups and some profit for the processing company:  .50% + $.32 per transaction.

Swiped credit card including mark ups and some profit:  1.75% + $.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)

So using these numbers lets see what a $100 sale would cost a client:

Flat fee:  $2.75  Debit:  $.82  Credit:  $1.95

Clearly flat fee pricing is a horrible deal.  As the average sale amount goes up the flat fee pricing gets worse and worse.  Look at what happens when the average sale goes up to $1000:

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

It should be obvious that any company processing credit cards for large amounts should NOT BE USING a flat fee rate system.  So  - that leaves the question - who should be using this type of pricing?  Small ticket clients.  Lets look at what a $10 average sale looks like:

Flat fee:  $.28  Debit:  $.33  Credit:  $.38

This does not look like a lot of savings but over hundreds and thousands of transactions it can really add up.  The flat fee system is a good deal typically up until the client runs an average ticket amount of about $20.  If their average sale is anything over that than they really need to consider setting up a traditional merchant account to get the best deal possible.

The other factor a business owner needs to think about is how much a client processes on a monthly basis.  Generally if they run under $1000 a month a flat fee system is a good deal for them because they do not pay a monthly fee.  Once they start running more than that the monthly fee is offset by the savings generated by the lower processing costs.

Conclusion:  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.

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