Canadian businesses rely heavily on merchant accounts in order to accept credit card payments. With the introduction of companies like PayPal and Square the hassle of getting a merchant account was drastically reduced and the potential for more businesses and individuals to accept credit cards as a form a payment increased dramatically. While the introduction of more merchant account providers may seem like a win for business owners, many business owners fail to shop around for the best credit card processing rates and end of paying hundreds or thousands of dollars in extra fees. According to Merchant Maverick, a website that reviews and rates credit card processors, there are three main pricing categories that businesses may fall into when looking into setting up a merchant account.
- Tiered Pricing: Every credit card transaction receives a code to categorize the transactions. The transactions are broken into three types of categories including qualified, mid- qualified and non-qualified. Qualified transactions are the lowest risk, and therefore merchant account providers charge the least to process these transactions. Different variables will contribute to what type of tier your business falls into and therefore how high your credit card processing rate will be.
- Interchange-Plus Pricing: With interchange-plus pricing, a business will pay an interchange rate for each transaction and a credit card processors markup. The markup usually includes a small percentage of the transaction and a per-transaction fee. Markup fees can range from 0.20% to 0.75%, and transaction fees can range from $0.15 to $0.30. Therefore, businesses that choose this pricing model need to compare different fees and markups between credit card processors to get the lowest possible rate.
- Flat-Rate Processing: Flat rate processing is the model that newer companies like Paypal and Square offer. With flat-rate processing, you always pay the same amount to the credit card processor.
The interchange-Plus Pricing model is the category that most business owners want to try to have for their merchant account. Fortunately for small business owners, this type of pricing which only used to be reserved for larger businesses is now more widely in use. While flat-rate processors like PayPal may be easy to sign up with, you are often paying a much higher per-traction fee than if you find the right interchange-plus merchant account processor. If you have a newer business and you, do not have very high monthly transactions, or you have a higher-risk business you may have no choice but to use a flat-rate processor.