Is Your Credit Card Processing Model Costing You?

If your restaurant accepts credit cards, then you operate under some kind of credit card processing model. These charge extra fees to cover both the cost of processing and the risk inherent in any card transaction. Generally, businesses either use the Interchange Plus or Flat Rate model. Both have associated fees and rates that you must consider so that you can make an informed decision about which one suits your business. When it comes to money, never go in blind.

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Interchange Plus Model

Pros

Essentially, the Interchange Plus model charges the interchange cost of a card plus a fixed markup. The interchange rate, which varies depending on the type of card a customer uses, goes to the bank who bears the “risk” of the purchase. This covers the cost of the risk. Credit card associations set the fee, thus it’s dependent on which card you use; for example Visa and Mastercard have different interchange rates. The “plus” constitutes an extra charge, usually determined on a per-transaction basis, that goes to the processor for profit.

Cons

This model has its own risks and rewards. Customers use so many different cards that it can make your monthly cost hard to predict. It also typically comes with inconsistent monthly fees and extra charges. Both these factors make budgeting more difficult under this model.

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Flat Rate Model

Pros

The Flat Rate model, on the other hand, works how it sounds: All transactions bear the same flat rate regardless of the type of card that’s used, and your costs remain constant from month to month with no interchange rates or markups applied. The predictability of this model has rendered it increasingly popular with small and new businesses, because you know your exact monthly rate and incur no extra costs on different cards, so you can accept a wider variety and increase your profits, because anyone can use any card. Managing a restaurant already has so many variables that taking some of the guesswork from your budget seems attractive to many new business owners.

Cons

However, the simplicity of the Flat Rate model comes with a price: Without seeing all of those long, complicated statements, you don’t know exactly what you’re paying for. This model can cost a little extra for the price of convenience. For example, in some cases a transaction rate would actually cost loss with the Interchange Plus model, but you don’t get those savings. Flat Rate processors also tend to withhold funds more often; since so many new and small businesses prefer this model, they have stricter fraud detection measures and need to do due diligence more often. This can cause unnecessary and frustrating hold-ups.

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Ultimately, both processing models have strong positives and negatives and which one works best for you depends on the size of your business, what credit cards you accept and of course plain old preference. Do your research first so you know what you’re buying. If the Interchange Plus model can teach anything, it’s that nobody likes a risky bet.

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