For many law firms, credit card processing fees are a sizeable item on the income statement. Because there are a wide variety of different types of processing fees, it can be difficult to figure out exactly how much you’re paying. It's also why, at Gravity, we try to simplify this process as much as possible, primarily by offering a fair and transparent pricing structure while providing all the important information in a one-page monthly statement without the jargon. In this article we'll cover the three different categories of processing fees as well as the most commonly-used credit card processing pricing models.
Three Types of Credit Card Fees for Law Firms
Processor fees: these are the fees your processor (such as Gravity) charges for the services they provide.
Card-brand fees: these fees are charged and set by the card brands (Visa, Mastercard, American Express, etc.)
Interchange: this fee is paid to the bank that issues the card used. It represents the largest portion (usually 70-80%) of your processing costs.
Your processor collects all three of these fees but does not control the pricing of the card-brand or interchange fees (aka “wholesale fees”), which are set by the card brands and card-issuing banks, respectively.
Three Types of Credit Card Processing Pricing Structures for Law Firms
There are three main types of pricing structures processors use:
Flat Rate: A flat-rate model is exactly what it sounds like. Instead of paying a different rate every month depending on your wholesale costs, you are charged a flat rate each month that covers all of the different fee types. This is the simplest pricing model, since you always know exactly what you will pay.
Cost-Plus: With a cost-plus structure, you pay the wholesale fees we collect on behalf of the banks and card brands as well as a flat fee to cover the services we provide. Because card brand and interchange fees will change depending on what types of cards you accept, the amount you pay each month will fluctuate. You can also see exactly how much you’re paying in each type of fee because it will be broken out on your monthly credit card statements. The downside is that it fluctuates based on what type of cards you accept, and it can be confusing to see all those fees on the statement.
Tiered:Gravity does not use tiered pricing models for its clients, but many other processors do. Under a tiered pricing model, your processor sets different rates and fees depending on the types of cards accepted. But because every processor is different and there are no standards dictating what types of rates can be charged for each type of card, the actual fees paid are extremely difficult to predict. To make matters worse, many processors will advertise a very low rate that applies to certain cards without telling you how much they charge for the other types of cards your business is likely to accept. You can read more about how tiered pricing really doesn't work for law firms here but if you’re on a tiered model under your current processor, consider requesting to be moved to one of the other models listed above.
In addition to these three main pricing structures, in many states, law firms are allowed to charge the credit card processing fees to their clients. This can be done automatically at the time of payment or after the fact by adding the processing fees to the client's next invoice. Under the cost-plus and tiered pricing structures, this is very challenging, since the fees fluctuate based on card type. But it is relatively straightforward under the flat rate model. If you are interested in exploring this option, see our nearly twenty page guide to shifting fees or dig in on the rules that govern this practice in our state-by-state guide to passing on card fees to clients for law firms.
Payment processing isn't rocket science but it's not always straightforward, partly because processors use intentionally manipulative practices like tiered pricing to make things more complicated. If you're still just getting started, check out our Complete Guide to Payment Processing for Law Firms.