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Understanding Pricing and Surcharging in Merchant Processing: A Guide for FFLs

Written by Austin Alterio


June 26, 2023


Understanding Pricing and Surcharging In Merchant Processing: A Guide for FFLs

As a Federal Firearms Licensee (FFL), managing finances in the firearms industry can be a complex task. One important aspect is understanding how to process credit cards effectively and navigate the intricacies of merchant processing. We will provide valuable insights into the pricing principles historically used in the merchant processing industry and discuss the topic of surcharging. Whether you’re an existing FFL or considering entering the firearms industry, this guide aims to help you make informed decisions and optimize your payment processing.

Section 1: Pricing Principles in Merchant Processing

To effectively manage your payment processing expenses, it’s crucial to understand the various components that make up your monthly statement. Here are six key elements to consider:

  1. Interchange: This is the standard rate set by card networks (Visa, Mastercard, etc.) and remains consistent for all merchants. Interchange fees are non-negotiable and represent the base cost.
  2. Margin: Processors and resellers charge a fixed markup on top of the interchange fees. This margin covers their services and accounts for negotiation potential.
  3. Transaction Volume: The number of transactions you process impacts your overall fees. Higher transaction volumes generally result in higher fees, while lower volumes can lead to more cost-efficient processing.
  4. Annual Fees: Some processors or acquiring banks charge annual fees for maintaining your merchant account. The specific fees can vary depending on the provider and services offered.
  5. Quarterly Fees: Processors may also impose quarterly fees for account maintenance or administrative purposes. These fees contribute to the overall cost of processing.
  6. Chargeback Fees: Chargebacks occur when customers dispute transactions, leading to the reversal of funds. Processors typically charge a fee for handling these chargebacks, which can vary depending on the provider.

Understanding these pricing components will give you greater transparency into your payment processing expenses and enable you to make informed decisions.

Section 2: Historical Sales Strategies and Considerations

In the past, pricing structures in the merchant processing industry were often complex and opaque, making it challenging for merchants to understand the true cost of processing payments. Some common strategies employed by processors include tiered pricing, interchange plus pricing, and flat-rate pricing.

  1. Tiered Pricing: This model involves grouping transactions into different tiers based on factors like card type, transaction volume, and risk level. Each tier has its own pricing rate, which can lead to confusion and potentially higher costs for merchants.
  2. Interchange Plus Pricing: Considered the most transparent model, interchange plus pricing involves charging a fixed markup on top of the interchange fees set by card networks. This structure provides merchants with a clearer breakdown of costs and better cost control.
  3. Flat-Rate Pricing: This model has gained popularity, particularly among small businesses and e-commerce merchants. With a flat-rate, merchants are charged a single rate for all transactions, regardless of card type or volume. While this simplifies pricing, it may not always be the most cost-effective option for merchants with higher transaction volumes or specific card types.

To ensure you understand and optimize your pricing, partnering with a reputable merchant services provider like Orchid Pay™ can help. They can provide a comprehensive analysis of your historical transactions and guide you towards a transparent and cost-efficient pricing structure.

Firearm Payment Processing for Every FFL

Section 3: Exploring Surcharging as an Option

Surcharging refers to adding an additional fee to a transaction to offset the costs of accepting credit cards. However, it’s essential to understand the regulations and guidelines surrounding surcharging, as they can vary by country and state. Here are key points to consider:

  1. Legal and Regulatory Requirements: Surcharging is not allowed in all states or countries. Before implementing surcharges, FFLs should consult local laws and regulations to ensure compliance. It’s important to understand any restrictions, disclosure requirements, and permissible surcharge amounts.
  2. Transparency and Communication: If surcharging is permitted, clear and transparent communication with customers is vital. Informing customers about the surcharge before the transaction and clearly displaying the additional fee on receipts or signage helps manage expectations and maintains trust.
  3. Customer Relationship Considerations: Surcharging may impact customer relationships, especially if they perceive it as an added cost or inconvenience. FFLs should carefully evaluate the potential impact on customer satisfaction and loyalty before deciding to implement surcharging.
  4. Cost-Benefit Analysis: Conduct a thorough cost-benefit analysis to determine if surcharging is the right strategy for your business. Consider factors such as transaction volume, average transaction size, and customer demographics. It’s essential to ensure that the additional revenue generated from surcharges offsets any potential negative effects on customer relationships.

Section 4: The Benefits of Integrated Payment Processors

Integrated payment processors offer a range of benefits for FFLs looking to streamline their payment processes and enhance overall business operations. Here are some advantages:

  1. Seamless Integration: Integrated payment processors can integrate with your existing point-of-sale (POS) systems or e-commerce platforms. This integration eliminates the need for manual data entry, reducing errors and saving time.
  2. Improved Efficiency: With integrated payment processing, transactions flow seamlessly from your POS system to the processor, eliminating the need for manual reconciliation efforts. This streamlined process saves time and reduces the potential for human error.
  3. Real-time Reporting: Integrated processors offer real-time reporting capabilities, providing you with valuable insights into sales trends, inventory management, and customer behavior. This data empowers you to make informed decisions and optimize your business strategies.
  4. Enhanced Customer Experience: Integrated processors can integrate customer data, enabling you to personalize the purchasing experience. This includes features like loyalty programs, customer profiles, and targeted marketing campaigns.


Navigating the complex world of merchant processing can be challenging for FFLs. Understanding the pricing principles, historical sales strategies, and the option of surcharging provides valuable insights to make informed decisions. By partnering with a reputable payment processor or merchant services provider, FFLs can streamline their payment processes, ensure compliance with regulations, and enhance overall business operations.

Disclaimer: The information provided in this blog post is for informational purposes only and should not be interpreted as legal advice. FFLs should consult with a licensed legal professional for specific advice and guidance related to their payment processing needs.