Information on Merchant Accounts,
Ecommerce and Credit Card Processing

October 14th, 2005 by Jamie Estep

Bundled Processing Rates BreakDown

Filed in: Merchant Accounts |

Many business owners that I talk to appear to be interested in bundled processing rates. A great deal less are interested after finding out exactly what a bundled rate is, and isn’t. Bundled rates can be great for some business and terrible for others.

What is a bundled processing rate?
A bundled rate is simply a combination of the credit card processing fee, and the transaction fee into a single flat percentage rate. The reason that a bundled rate seems appealing is that is simplifies the whole transaction process, at least a far as looking at it on a statement is concerned. The reason that bundled rates are bad for merchants, is that they stand to spend a lot more money on their credit card processing with a bundled rate compared to a standard rate.

When a merchant signs up for a bundled rate, usually they have to have processing history, an average ticket size us assumed from their processing history . The rate is then calculated by applying the processing cost per transaction using a standard rate, and converting it into a percentage.

Business A is assumed to have a ticket size of $50.
A standard rate is assumed to be 1.75% + $.22 / transaction.

Cost per transaction: $50 x 1.75% + $.22 = $1.10

Converted entirely to a percent: $1.10 / $50.00 = 2.2%.

This business would be offered a bundled rate of 2.2 – 2.5% / transaction.

This seems appealing. Its not extremely high, but here is where the merchant stands to lose money.

Example: Merchant processed a $500 transaction.
Original Rate: 1.75% x $500 + $.22 = $8.97
Bundled Rate: 2.25% x $500 = $11.25

A $3 difference doesn’t seem like much, but after a year of paying more on every transaction over $50, the bill can be hundreds or even thousands of dollars more than a standard rate. For many businesses even hundreds of dollars of savings is a significant amount. If downgrade charges are also calculated from a bundled discount percentage, the extra bill can triple each month.

What to Expect:
You should always have the option of a standard rate structure or a bundled rate structure. Most providers wont let a new business process on a bundled rate because the provider stands to lose money on a merchant with no processing history if the bundled rate is set too low. If you have lower amount transactions, you will be saving money, but your rates will most likely be raised at some point in compensation. There is no processor that will intentionally lose money on a merchant account.

The bottom line is that bundled rates can be great for businesses with a very steady ticket size or very low ticket businesses (Fast Food, Cheap Restaurants, etc). Otherwise, most businesses are better off with a standard rate merchant account.

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