ZERO Mark Up Credit Card Processing?

Independent Sales Organizations companies (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 this markup, they’d essentially be providing services for free, which clearly isn’t sustainable.

How the Discount Rate is Applied

There are three primary methods—or combinations thereof—for applying the Discount Rate:

1) Percentage of Transaction:

This method is straightforward. The fee is directly tied to the actual sale amount. For instance, on a $100 sale with a 0.05% discount rate, you pay exactly 5 cents. There’s no bundling, averaging, or guessing involved; the fee is what it is based solely on your sales.

2) Transaction Fee:

In this approach, the fee is a fixed amount per transaction, meaning the effective percentage cost varies with each sale. For example, an 8-cent fee on a $100 sale represents 0.08% of the transaction, but the same fee on a $50 sale becomes 0.16%. Although sometimes called “flat rate processing,” the percentage impact changes depending on the transaction size; therefore, it is anything but a fixed amount.

3) Flat Fee/Subscription/Membership:

This option is generally the least advantageous. It’s similar to paying one fixed price, e.g., $10, for a range of items varying from $5.00 to $12.00. Regardless of whether a transaction is worth $5 or $12, you pay the same $10.00. While this may sound appealing on the surface, it often results in overpaying for lower-value transactions. To make this work for the store, they have to have a lot of items closer to $5.00 and very few worth $12.00. Clearly, if too many items were even worth $10, they would break even and lose money if too many items were worth $12. So why have this complicated pricing?

The Complexity Behind “Simple” Pricing

Many processors and ISOs promote these pricing models as a simpler way; just pay this flat fee over cost. 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. If you’re paying a percentage fee (e.g., 0.05%), that rate remains constant regardless of your total processing volume or individual transaction sizes. Conversely, flat rate models typically include an additional small transaction fee, which makes the processing cost vary. The flat fee goes up and down based on the merchant processing volume. If you are lucky, one month, their fee and your processing volume might align and be a reasonable price, while the following month, you are $100 into the next bucket, which drastically changes your overall processing effective rate. Again, there is nothing flat about this system. 

The only way to have truly fixed costs, as in never paying more for one transaction than another, is to pay a fixed percentage of each sale. If you do this, your actual effective cost will remain 100% the same regardless of your processing volume and transaction size. 

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’s important to consider whether the provider’s claims align with transparent business practices, especially when they have access to your business checking account. 

Checking reviews and ratings—such as those from the Better Business Bureau—is essential. However, make sure you don’t just look at the rating; read the entire file. 

One of the larger ISOs in the market has an A- rating and isn’t even accredited, while another one has an A+ rating despite receiving hundreds of complaints. 

While some will try to make things look simple on the surface, 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.

Click here to schedule a call to see if your credit card processor is overbilling you.

Subscribe to insights  –  Read more Insights  –  Submit an article idea