“Zero Markup” Credit Card Processing: Why It Doesn’t Exist

If zero markup credit card processing was real, we would use it

We would also start asking about free lunches. What actually exists is creative marketing.

Independent Sales Organizations (ISOs) that resell credit card processing often market themselves as “membership clubs” with no markup on processing fees. In reality, every ISO includes a markup, known as the Discount Rate, on top of the base costs. Without that markup, they would essentially be providing the service for free, which clearly is not sustainable.

How the Discount Rate is applied

There are three primary methods, or combinations of them, for applying the Discount Rate. Notice which one is actually fixed, and which one is called “flat” but is anything but.

The complexity behind “simple” pricing

Many processors and ISOs promote these models as the simpler way: just pay this flat fee over cost. But how do you even know what it truly costs? Merchant processing is non-regulated, which allows processors to charge anything they want, including inflating interchange.

In practice, the pricing structure is much more complex. A percentage fee, say 0.05%, stays constant regardless of your total volume or individual transaction sizes. Flat-rate models typically add a small per-transaction fee, which makes the cost move. The flat fee rises and falls with your processing volume. If you are lucky, one month your fee and your volume line up at a reasonable price. The next month you are $100 into the next bucket, which drastically changes your effective rate. Again, there is nothing flat about this system.

A commodity at its core

Ultimately, merchant processing is much like any other commodity: its primary differentiator is cost. Regardless of how ISOs market themselves, you are essentially paying for a data line that transmits your transaction details to networks such as Visa, Mastercard, Discover, and American Express.

Ethics and trust in the industry

Ethics play a crucial role beyond pricing structures. Marketing terms like “Zero Markup,” “Flat Rates,” or “Wholesale Cost” can be deceptive and make people question everything. It is worth considering whether a provider’s claims align with transparent business practices, especially when they have access to your business checking account.

Some will try to make things look simple on the surface, but the underlying structures and fees are complex. Understanding exactly how fees are calculated, and verifying your provider’s ethical standards, is key to making an informed decision.

I think the biggest question is this

Don’t hear what I’m not saying. I am not saying this is a bad way of doing business. It can be a good one, if you fit the sweet spot in the brackets. But keep in mind that if your credit card processing volume goes up or down, it can kick you out of the sweet spot and into a very bad spot. So tread carefully.

And to be clear, just because an ISO or credit card processor seems to be up for straight-shooter of the year, it does not mean they are the good guys. I heard an old saying growing up: “there is more than one way to skin a cat.” Don’t hate me for saying that, I think it is a terrible thing to say. But the analogy is very apropos here. You can overbill a merchant more ways than I can even count, and the list is growing daily.

The post How Can I Have the Lowest Discount Rate and the Worst Deal will give you more insight on the issue. So will my book, The Great American Heist: How Credit Card Processors Silently Siphon Off Businesses’ Profits. Another great resource is our How to Read Your Merchant Processing Statement.

Prefer to talk it through first? Schedule a call to see if your credit card processor is overbilling you.