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Misconceptions In Credit Card Processing

There are several common misconceptions in credit card processing that sales reps could potentially use to trick you into overpaying for their financial benefit.

Misconception 1: Flat Rate Pricing is the Cheapest

Flat rate pricing, where a processor offers you a fixed rate for transactions, looks simple. Instead of various interchange rates, you’ll just see one rate. Companies like Square, Stripe, and PayPal offer flat rate pricing. You may see it as 2.75% (in the case of Square’s swiped transactions) or 2.9% + 30 cents (in the case of Stripe’s online transactions.)

The truth is, flat rate pricing may be okay, but ONLY for businesses that fit a very specific criteria. In the case of Square, for example, it will be your lowest cost option if your average transaction is under $10.00 OR if you only process a few thousand dollars per month in credit card payments.

On flat rate pricing, the processor charges you one rate no matter how much the transaction costs at wholesale. On interchange plus, the processor passes along the wholesale interchange costs to you and then charges a separate markup.

Misconception 2: Interchange Plus Pricing Protects You from Being Ripped Off

While it’s true that interchange plus pricing is more transparent and has the potential to help you secure the lowest costs, be aware that it’s not a silver bullet. The truth is, interchange plus pricing can still be manipulated and we have been increasingly seeing payment processors “pad” interchange rates.

The processor offers you a nice, low markup and you sign up. The processor then proceeds to make up for the low markup by inflating the interchange rates. Rather than passing interchange fees to you at cost, the processor adds markup to interchange, but leaves it labeled as interchange. Even worse, they often only apply it to some interchange categories, making it more difficult to spot.

Make sure that you’re getting interchange plus with true pass-through pricing, where interchange and assessments are passed to you at cost.

Misconception 3: You’ll Get the Best Pricing by Cutting Out “Middlemen.”

In merchant services, some processors try to make it sound like you’ll be “going direct” to the card companies or say that they can help you “cut out the middleman.” In reality, no one goes “direct” to the card companies. There is always a processor to facilitate the transactions.

Additionally, while Visa and Mastercard do set interchange rates, your processor is ultimately responsible for your total processing costs. Pricing model, markup, and interchange padding all play a role in how much you’ll pay. It’s not possible to get a merchant account with Visa or Mastercard and “go direct” to ‘cut out the middleman’ for securing lower costs.

Misconception 4: You Can’t Get Lower Pricing Unless You’re a Big Business

Small businesses often think that they’re not large enough or important enough to get lower pricing, but that’s just not true. We regularly help small businesses get the same great pricing that larger companies enjoy.

The key to securing good pricing is education and confidence. If you go into it thinking that your business is too small and resigning yourself to whatever rates a processor offers, you’re dooming yourself.

Don’t resign yourself to higher rates and fees just because you’re not a publicly traded company. Be realistic about what pricing you can get but don’t assume that you need to process over $1 million per year in credti card sales volume before you can get lower pricing.

Tailored Transactions offers the experience and expertise necessary to correctly set up your merchant account so that your business receives the best possible pricing on your credit card processing.

Follow the link below to contact us for a no-obligation Free Rate Quote!

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