How do processing fees compare between Stripe vs Merchant Account

How do processing fees compare between Stripe vs Merchant Account
In reviewing payment processing options, it is important to note the fee structures you have available through Stripe and the fees you would pay with a traditional merchant account prior to making an informed business decision. Stripe vs merchant account will have very different pricing models, and based on your business size, your product, your traffic, and how you process payments, the fees may result in a lot of difference in your profit. 

Stripe’s Price Transparency

Stripe follows a simple pay-as-you-go pricing approach, with no set-up fees, monthly minimums, or surprise fees. Stripe’s pricing for most businesses is online processing at 2.9% + 30¢ (including recurring payments), and in-person payments through Stripe Terminal at 2.7% + 5¢. International cards and currency conversion have fees of 1.5% and 1%, respectively. This comfortable transparency is especially advisable for startups or small businesses with predictable payments.

With no monthly fees, businesses only pay when processing payments, making Stripe affordable for businesses processing in erratic peaks (bundles of transactions during Christmas) instead of yearly. However, for high volume processors, efficiencies in pricing come at a cost versus prospective traditional merchant accounts.

Merchant Account Fee Structure

Standard merchant accounts usually operate on an interchange-plus pricing model, traditionally more favorable to established businesses with steady, ongoing processing patterns. Rather than a flat rate, merchants will pay the "interchange" fee (set by the card networks) plus a small markup by the processor (typically pennies, with a hard minimum of $0.05). This established structure typically means lower per-transaction costs, especially for businesses processing more than $10,000 each month.

That said, standard merchant accounts have multiple components of fees to contend with on top of a flat-rate software/activity fee ($10-30 per month), PCI compliance fee ($5-15), statement fees ($5-10), and a possible account set-up fee ($50-500). Some processors charge termination fees for early cancellation of the contract (often from $300 to $500), annual fees, or account fees that require cancellation yearly. Some processors charge for equipment rental and other costs, making an overall fee structure more complicated (although cheaper overall for high-volume businesses).

Volume-Based Considerations

For businesses that process below $5,000 each month, Stripe's flat-rate model has proven to be better in terms of fees because they do not charge a monthly fee. The average break-even point of separating between strike and traditional merchant accounts is between $8,000 and $12,000 of monthly processing volume.

For businesses that process over $20,000 each month, traditional merchant accounts are usually better established through the interchange-plus model. Even if they charge the standard fee plus a markup for each transaction, their costs will typically be less than Stripe or any other flat-rate processor. With the interchange plus model, they can save between 0.3 and 0.8% on their effective processing. Should these businesses process 100 transactions/month at $200, their effective rates would be similar, but at 10,000 transactions/month at $200 each, their effective rate savings compound significantly for a total annual savings (potentially thousands of dollars).

Other Costs

Other costs also need to be considered in addition to basic processing fees, such as integration costs, development time, and ongoing maintenance costs. Stripe has easy-to-integrate APIs and text documentation for developers, which can minimize implementation cost and time to market, while traditional merchant accounts may have a more complicated integration with your existing systems that will take longer to implement and cost more to develop.

Chargeback fees also differ a lot. Stripe has a chargeback fee of $15, while traditional processors typically have a fee of $20-25. In the case of businesses that operate in high chargeback industries, it is easy to see how this could affect total processing costs.

The Decision

The right decision entirely depends on your actual situation. Stripe is ideal for companies that value simplicity, speed to market, and predictable costs, and are best suited to start-ups and small-to-medium companies. Merchant accounts are a better choice for established companies running high transaction volumes and/or have individual needs that are more complex and cannot place value on minimum per-transaction costs.

In the end, it is a calculation based on your expected transaction volume, average ticket size, and business model to find out which choice represents the best value for your situation. Trinity Consultings are the best one for the merchant solutions.

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