Are Merchant Account Membership Plans All They're Cracked Up To Be?

The payments ecosystem is one of constant change and evolution. The payment processing industry as a whole is evolving rapidly and for the better. Credit card processing options continue to grow for merchants as innovative new companies continue to disrupt the market.

Just a few years ago, there were really only a couple of options for a business to accept credit card payments. Getting a merchant account with a flat rate or subscription pricing to process payments wasn’t even a thing.

Over the last decade, however, the industry’s created more options for how merchants can pay for their merchant services. Merchants can choose from Tiered Pricing, Interchange-plus pricing, or flat-rate merchant accounts. And now, merchants can get a merchant account with subscription or “membership” pricing plans. 

These new pricing models are meant to give merchants more options and more control over what they pay to accept credit cards. But having more options can make deciding which is right for your business more difficult. Business owners rarely have the time to learn how to understand their credit card processing rates. Nor do they want to. They just want to accept payments for their goods and not have it cost an arm and a leg. And all of these different plans can just make it more confusing for the merchant.

In this article, we’re going to compare merchant account memberships with more traditional merchant account pricing. We’ll weigh the pros and cons of subscription pricing as well as explain how traditional merchant account pricing works. We understand that merchants of today need the most reliable and affordable way to accept card payments. This article will simplify the options to help merchants decide if this pricing structure is right for their needs.

Merchant Services have come a long way since the days of Tiered Pricing.

Salesmen in the credit card processing industry have earned a reputation for overcharging and taking advantage of merchants for their own profit. There’s a reason merchants referred to the sales agents as “the used car salesmen of the financial industry.” And the old Tiered Pricing structure for merchant services is largely to blame.

A decade ago, most processors would only bill merchants for their merchant services through the Tiered Pricing model. In fact, some processors would not allow a Merchant Service Provider (MSP) to bill merchants with Interchange-plus pricing. 

But this pricing model can be very deceptive because it leaves a lot of room for ambiguous and hidden charges. 

But times are changing. There are a few great merchant service providers working hard to change the narrative. This has resulted in new, more truthful, and transparent ways to charge merchants for the credit card transactions they process. More options mean merchants can choose the option that works best for their business model. And better business practices and more transparency allow businesses to proactively avoid unscrupulous sales associates. 

Now, Interchange-plus pricing is the gold standard, largely considered the most truthful and transparent pricing model available. 

We are highly convinced that Interchange Plus pricing is the most fair, affordable, and transparent Payment Processing pricing model. We’ve spent quite a bit of time educating merchants on Interchange-Plus pricing. As well as explaining why we believe it is the most transparent pricing model. 

But today, let’s dive into one of the newest pricing models a few merchant services providers are offering. 

Should you accept payments with a Merchant Account Membership Plan?

This new pricing model is usually referred to as a merchant account membership plan. But with some processors, you will find it referred to as a merchant account subscription plan.  It seems very simple and straightforward and might have you wondering if it’s right for your business. 

The subscription pricing model for merchant accounts is one of the newest being offered in the industry. In fact, there are only a few reputable merchant services providers offering it. And because of this, the name can be a bit confusing.

Before we dive in, we need to clear one thing up. It could be easy to confuse this name with a common type of merchant account with a similar name.  This common merchant account type is called a subscription or membership merchant account. This is not the same thing as merchant account subscription or membership. Confusing, right?

A merchant account membership is not a merchant account for businesses that offer memberships, like a gym. When we say “merchant account subscription plan” we don’t mean a merchant account for businesses that offer subscriptions, like Dollar Shave Club. But, if you google membership merchant account or subscription merchant account, that’s what will top the list.

Those are merchant accounts for businesses that need to process recurring billing transactions. They are a type of high-risk merchant account, but they differ greatly from what we’re talking about here.

The first is a type of merchant account. What we're talking about today is a pricing structure for merchant accounts. 

Also, don’t confuse merchant account membership plans with merchant accounts that have flat-rate pricing. Even though at first glance membership pricing may seem like a flat rate, they are quite different. We will explain. 

A Membership Plan or Subscription Pricing model is not the same as flat-rate processing, such as with Square. When you choose flat-rate pricing, your price is based on a percentage of your processing volume. With subscription pricing, the merchant pays a flat monthly fee that is not based on volume. Well, not exactly. Let’s dive in.

How do merchant account subscriptions/memberships work?

With this type of pricing, merchants don’t pay a fee that is based on a percentage of processing volume.  Instead, merchants pay one predetermined monthly fee + a per-transaction fee. 

When looking at this pricing option, we have to remember that Interchange Fees are always a constant. Interchange fees are the fees charged by the card brands (Visa) and the card-issuing banks (Chase). Interchange fees are the same for every merchant, and every merchant must pay them if they’re accepting credit cards.

They are the base costs of accepting credit cards and they make up the majority of your costs. So, no matter what pricing plan a merchant chooses, Interchange rates and fees will either be built in or in addition.

Providers offer merchants different membership levels. Costs for each level, however, are based on their processing volume. Prices for each level will range anywhere from $49/mo. to $199/mo. With a subscription plan, you don’t choose the membership level that’s the most cost-effective for your business. Your membership level is based on the total monthly volume you process.

Now that you know that Interchange fees are the base costs, you can view everything else as the processors fee or “mark-up”.

Let’s consider how this works:

So, for example, level one is for merchants processing under $25,000/mo. Level one costs $49/mo. + 0.15 cents/transaction. 

Level two is for merchants processing from $25,000/mo. up to $50,000/ mo. This next level would cost $99/mo. + 0.10 cents/transaction. And so on.

Let’s keep in mind that merchants are not just paying the one monthly membership fee. Merchants on a membership plan are still paying interchange fees + a per-transaction fee, in addition to the quoted price. So when you’re comparing pricing models, remember that it’s the mark-up the merchant service provider charges that you need to be concerned with.

How does flat rate pricing differ from membership pricing?

At this point you might be wondering how membership pricing is different from flat rate pricing like companies like Square offer. It seems like flat rate pricing, doesn't it?

There are two differentiators:

First, flat rate pricing is a percentage rate based on processing volume. For example, Square charges 2.9% + .30 cents per transaction. Membership pricing is a flat dollar amount + per transaction fee based on your membership level. 

Second, with flat rate pricing, Interchange rates are built into the rate. In other words, you won’t pay Interchange rates on top of the 2.9%. This represents an average percentage high enough to encompass Interchange without the company losing money. With membership pricing, merchants will pay whatever the Interchange rates are for each card they process plus the fee and per transaction rate for their level.

Of all the pricing models used by merchant service providers, this is probably the easiest to understand. Just because it’s easy to understand doesn’t mean it’s always the most cost-effective. Like anything else, it could be a great option for some merchants and not for others.

There are both pros and cons of subscription pricing for merchant accounts.

Merchants may not realize this, but merchant services are very merchant specific. There are a lot of considerations that go into finding and quoting the best solution for a particular business. 

As with anything, there are pros and cons to a subscription pricing model for merchant accounts. Merchants should consider all aspects when deciding if this type of pricing is right for their business.

Pros:

• • Easy to understand pricing with easy-to-read statements. 
  • Typically works well for businesses that process high volumes with many transactions. 
  • Good for large ticket items since your fee is not based on volume of the purchase.
  • Good for merchants that process fewer transactions per month.
  • No long-term contracts or early termination fees. Usually, but also double check your contract before signing..

Cons:

• • Most providers only accept U.S. based businesses.
  • Most providers are not equipped to board high-risk businesses. 
  • The fee isn’t always the whole fee- some may charge additional fees for services such as processing ACH transactions or same-day funding.
  • Some require you to rent your credit card terminal, and/or mobile card reader. (An additional ongoing cost.)
  • Automatically moved to the higher price membership level if you exceed the cap on processing volume in a month.
  • May have to call customer service to physically ask to be lowered again to the lesser membership level if going over your volume was a one-time thing.

There’s more to a merchant account solution than the rate.

On the surface, the idea of paying one rate every month to accept credit cards seems like a no-brainer. But there is a lot you have to take into account that may not be obvious. 

Every vendor is different. You have to make sure you’re getting all the software, hardware, and features needed to run your business. Does your merchant account come with a terminal or gateway? If so, great.

It's important to ask if the tools you need will be part of your membership. Providers only tend to make certain tools available to merchants with the higher level membership plans. You may have to turn to a third-party vendor, which will end up costing you additional fees. And renting a terminal from the provider is also an additional ongoing cost. 

If you’re going to compare pricing, you’ve got to do it right. To get truly accurate pricing, you must take all costs into account, not just the monthly rate. That is the only way to see if this type of merchant account is the most cost-effective, or right for your business. 

Whether it is a good deal for you depends on how much you process and how many transactions you process. Remember, the merchant processing $25k a month pays the same fee as the merchant processing $50k, or twice as much.  And of course, that also depends on how many transactions you process x the per-transaction fee. So, who gets the better deal – the merchant processing at the low end of the level or the one on the high end? As you can see it might be great for the merchant processing volumes at the top of the membership level and not so great for the merchant at the low end. 

Is a subscription or membership merchant account right for your business? 

We don't believe that any processor should say that their payment processing is the best for every business.

Creating the best credit card processing quote is very business-specific. It would be easier to say “this” type of pricing is good for these businesses and “that” type of pricing is great for others. But that wouldn’t be best for business owners.   

We do believe that pricing should be completely transparent for the merchant. We believe that you should understand what you’re paying and there should not be any sneaky tactics or hidden costs.

But what type of merchant account a business gets, who they get it with, and the final rates and fees all relate to and differ for each specific business. 

Of course, most of the time, rates will depend on your average monthly processing volume. But there are also many other variables to consider. Does your clientele all carry American Express black cards? 

A good Merchant Service Provider will also take into account the average ticket price and the number of transactions. They’ll consider your customer demographic and research the types of cards you accept most often. They’ll determine whether you accept mostly basic credit cards or a high percentage of corporate and rewards cards. 

The type of cards you accept have an impact on your overall costs.  There are hundreds of different card types, each with their own corresponding Interchange Rate.

How you accept those credit cards also has an effect on your rate.  Are you accepting mostly card-present payments, or do you take them online or through a virtual terminal? 

Industry type also plays a role- are you considered “high-risk”? Do you operate Internationally? Do you have a high incidence of chargebacks or attract fraud? If your business is considered high-risk, a subscription-based processor won’t take you anyway.

There are many factors that come into play when finding the right solution and quoting a price for a merchant’s credit card processing. And sometimes the cheapest isn’t the best for your future growth. 

Business owners also need to consider how important customer service is for their business. Attentive customer service and enhanced features could be integral to your future growth and success.

It sounds cliché to say that no two businesses are alike. But, it’s true. 

What we do at MonerePay Merchant Services:

We know that accepting credit card payments is integral to a business’s success. For us, providing merchants with credit card processing isn't making a sale. When we board a business with their merchant account, we’re creating a business partnership for the success of the business.

We believe our clients deserve a credit card processing solution that’s both reliable and affordable, and sustained through customer service.  That’s why we offer our clients Interchange Plus pricing because we believe it truly is the most transparent pricing model. We don’t require long-term contracts and we won’t charge you early termination fees. 

When we quote a business for their processing needs, we expect to earn their business for life. We can’t do that without offering the best solution for their needs and backing it up with stellar customer service.

Beyond working with a reputable MSP with a focus on customer service, price still remains paramount. The only way to know what solution is right for your business is to do the math. 

At MonerePay, we’re not afraid to do the math. We’d be happy to sit down and do the math with you. We can help you calculate your rates, and we’ll even compare them to a monthly rate subscription plan merchant account.

If you’re ready for a Merchant Services Partner that works for you, call us. We’re happy to do the work.