Lately, one of the trends which some companies took upon is so-called Fixed merchant account fees. It means a payment company in question will put its whole margin into a single fixed amount which merchants will be paying every month, regardless of how much sales they did that month. In exchange, they will get access to pure Interchange rates or something very close to it. In some circles, it was touted as a revolution on the payment processing market.
The merchant payment processing market is very, very competitive. Hundreds of payment processors are constantly looking for ways to offer cheaper payment fees and stand out from the competition.
Lately, one of the trends which some companies took upon is so-called Fixed merchant account fees. It means a payment company in question will put its whole margin into a single fixed amount which merchants will be paying every month, regardless of how much sales they did that month. In exchange, they will get access to pure Interchange rates or something very close to it. In some circles, it was touted as a revolution on the payment processing market.
There're a few caveats in this pricing model though, which may seriously limit its appeal for a small or medium-sized business.
Firstly, you have to commit to a significant monthly fee, which will be payable regardless of how much of goods or services you sell that month. it may be especially if your business goes up and down due to seasonal demand or any other circumstances.
With the recent COVID-19 pandemic, many businesses have experienced a sudden drop in activity or a had to shut down their operations completely. But with a fixed fee merchant account they still had to continue their monthly payments or risk having their merchant account closed down. And when your merchant account has been closed with the unpaid balance, it's extremely hard to get a new one even from another payment provider.
Second, even when you pay a fixed monthly fee for your merchant account, it doesn't mean you are getting access to the pure Interchange card processing rates. What are you getting is the so-called discounted fees, which are the same Interchange Plus rates, but with the cheaper Plus (or markup) part.
It all sounds a bit confusing, but in a nutshell, it means that you will pay a good part of your merchant account fees upfront in the hopes to get the whole amount to be slightly less. Does it make sense? Well, it depends.
But what about the cost to value ratio? Is it worth it to pay a fixed monthly fee for your merchant account in the hopes that the discounted rates you get access to with it will outweigh the cost?
Let's take a closer look and see if this pricing model is better for merchants than Interchange Plus payment fees. Let's assume you are a small business, which according to statistics sells about $50,000 in goods and services every month. And, let's say your average sale value is $100, which is typical for retail as well. That gives us exactly 500 transactions which you will make every month. Now, let's do the math.