Why Is Flat-Rate Pricing Harmful To The Church?

There are four basic pricing models used when a church accepts online donations. In part one of this series, we will unpack flat-rate pricing.

Processing online donations costs your organization money. These fees go to pay either the credit card company, payment processor, or giving software. This can happen in multiple ways, but typically, churches are charged a percentage for each transaction and other processing fees each month.

These prices vary wildly from company to company, and some of the for-profit companies are counting on you not looking too closely at the fine print. This way, they can overcharge without you realizing it. One way in which they do this is flat-rate pricing.

What Is Flat-Rate Pricing

Flat-rate pricing is quite simple to understand, which is why it’s one of the most popular pricing models. Many donor management systems (DMS) like PayPal use this model. Basically, each transaction is charged the same rate, such as 2.9%+$0.30, regardless of the payment method used. 

What Is Interchange

When a business accepts card payments, the card companies charge a percentage called interchange. This is how companies such as Visa, Discover, and Mastercard can afford their promotions and cashback offers.

Each card company has a different interchange rate for each of its card types. A few of these companies have typically higher rates than others, and these rates can change every year. It's a complicated process that some vendors hope you don’t try to understand.

Pros of Flat-Rate Pricing

The biggest advantage of this model is its simplicity. You’ll be able to quickly determine how much is owed in processing. Let’s say last month you had 40 givers make donations of 100 dollars each. Whether they used a bank account, credit card, or debit card, your ministry will be charged $3.20 for each gift if your rate is 2.9%+$0.30.

Cons of Flat Rate Pricing

If you look closer at the same scenario from above, it quickly becomes clear that you are drastically overpaying. Each type of credit card has a different interchange rate, with 2.9% being on the higher end. Debit cards will always be on the lower end, and ACH/eCheck transactions are actually 0%.

In addition to having a higher rate than what is necessary, these companies will also charge excessively for additional features. They will charge for extras such as round-up, early termination, and QR code transactions at a very high premium. These rates and other hidden fees show a lack of transparency.

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Bringing It All Together

At first, flat-rate pricing sounds nice until you realize how much you are overpaying. You wouldn't pay the highest price for every loaf of bread on the shelf or every house on the block. You shouldn't pay the same high price for each donation. 

To continue learning about payment processing, be sure to subscribe to our mailing list to be notified when our next blog in this series comes out.

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