What Does Bundled Fees Mean?

The term bundled fees for credit card processing seems rather self-explanatory. When answering the question what does bundled fees mean, you should consider separating out all the fees that make up the cost of credit card processing, the processor charges one rate that covers all the fees. How do processors come up with this rate? They combine the interchange fees paid to the issuing bank, the assessment fees paid to the credit card associations, and add in their processing fees to come up with a single flat rate percentage charged on each transaction. Bundled pricing certainly sounds like the easy way to manage your credit card processing costs:

Total sale x fixed percentage = cost per credit card transaction.

Bundled fees are based on your average total sale. This number is determined by your sales history, and becomes part of the equation for determining your processing rate, making bundled fees good for businesses with a steady ticket size. For example:

  • Let’s assume you own a mid-sized business. After a few years in business you can show an average ticket of $30.00. All your transactions are card-present transactions swiped through a POS terminal, making them eligible for the qualified rate.
  • Now let’s apply a standard qualified processing rate of 1.75% (the total of the interchange and bank processing fees) + $.22 per transaction charged by the processor.
  • That makes your average cost per transaction: $.75. Converted into a percentage, this would be 2.5%, making your bundled processing fee 2.5% of every sales.

But Be Careful…

Explaining what does bundled fees mean, will help you understand, why bundled fees are not as cost effective as they may seem. What happens when you run a $100.00 ticket sale through the same process?

  • With a standard qualified processing rate of 1.75% + $.22 per transaction, you would pay $1.97 to process this credit card transaction.
  • With your bundled rate of 2.5%, you would pay $2.50 to process this credit card transaction.

One could argue that your costs would eventually even out over a period of time using a bundled fee program to process your credit card transactions since most ticket sales will be in the average range, while the transactions that are lower should balance out the sales that are higher than average. And even if they don’t, is there really such a big difference in costs? Well, no, not on a few sales, but if your business sees an increase in your sales tickets several times a year due to seasonal buying or if you begin to stock higher ticket items, a bundled rate could wind up costing you thousands of dollars a year.

The Real Downside To Bundled Fees

When hearing what does bundled fees mean it’s hard not to be won over by the credit card processing ad that claims to have the lowest fee, especially when those fees are presented as a fixed percentage rate. On the surface a 1.8% rate sure looks like a better deal than a 2.2% rate. But dig deeper and you will find the real downside to bundled fees.

Bundled fee plans seldom have just one set percentage rate for all your transactions. In the example above, we clearly stated the rate was based on average ticket sales + qualified transactions. But bundled fee plans also have provisions for transactions that don’t fall into the qualified category.

Credit card transactions fall into one of these categories, each with some basic requirements that must be met:

  • Qualified: Card-present transactions, swiped at a POS terminal, authorized and settled as per the regulations of the plan.
  • Mid-Qualified: Manually keyed-in transactions using Address Verification Service to identify the card holder.
  • Non-Qualified: Keyed-in transactions without AVS; transactions that are not settled within a 24-hour period; transactions that don’t meet the conditions set out for the other categories.

Answering what does bundled fees mean, will give you a better idea about the existence of transactions that seem like they should fall into one category but are downgraded for a variety of reasons. For example, rewards card transactions, even if they are processed at a POS terminal, usually fall into the Mid-Qualified category.

So that low rate you were quoted is not the rate you will pay for every transaction. Bundled fee plans actually have multiple rates, one for each qualifying category. And with a bundled fee structure, your processor gets to choose which transactions are considered qualified, mid-qualified and non-qualified. That base rate may seem really attractive, but a processor could simply route more of your business transactions to its higher qualifying rate, costing you even more money every month.

And don’t assume that a low qualified bundled rate from one processor means the rates in each of the other qualifying tiers will be lower as well. When researching what does bundled fees mean, in order to choose a bundled fee plan, be sure to compare rates for all the categories to be sure you are choosing the credit card processing plan that’s right for your needs.