There are 3 main pricing models to consider when accepting credit cards on a smartphone. The ideal payment plan will ultimately depend on the type of business, as well as the value and volume of the transactions. Third-party processors generally offer flat-rate pricing, while merchant service accounts tend to utilize interchange-plus or tiered pricing.
As the simplest pricing model, the flat rate may appear to have higher rates, but it usually does not involve additional fees or long contracts, making it ideal for small businesses processing less than $3,000 each month. Flat-Rate pricing is generally a flat percentage of the transaction value or a flat-percentage for all transactions, with a smaller fee per-transaction.
In this model, the merchant pays a wholesale rate, as well as the markup from the processor. The wholesale rate contains the interchange fee, which is a rate set by the card networks that all processors are required to pay, as well as the assessment fee and a non-negotiable rate that card brands charge to processors.
The markup of the processor is the only negotiable cost in this pricing model. Industry experts and large companies prefer this pricing model due to its transparency.
The tiered pricing model is a categorization of transactions into tiers. These are - qualified, mid-qualified, and non-qualified.
Qualified transactions have the lowest rates, and include basic debit or credit cards swiped at the POS. Mid-qualified transactions generally involve rewards cards being processed at the POS. Non-qualified transactions include corporate cards, keyed-in transactions, and premium rewards cards, which have the most expensive fees.