Processing payment cards and bank debits is a common requirement for most membership based businesses, such as martial arts schools, fitness / MMA / cross-fit gyms and yoga studios. Being able to charge members on a regular schedule for memberships and create on-demand charges for selling products is how those businesses generate revenue.

Despite being so important for such businesses, payment processing is often one of the most misunderstood aspects of it, and particularly how payment processing fees are calculated.

You’ll hear terms thrown around such as qualified / non-qualified payments, CP / CNP (card-present / card-not-present), chargebacks, different rates for different card brands, monthly charges and more, in a way that obscures more than it reveals of the final costs, and often by design.

In this article, we’ll go over the important things you should know about gym payment processing for your memberships based business, common pitfalls and how to compare different solutions to get the best result for your business.

Pricing as low as …% *

* For qualified payments

You’ve probably seen this line before when shopping around for a payment processor or a merchant account – showing you a low processing fee with phrasing such as “As low as…” or “starting at …”.

This is a common marketing tactic that takes a topic that most business owners are not experts on, and uses that information imbalance to make the offer seem better than it actually is.

Different transactions are charged different rates by the credit-card companies, depending on the type of card used, the potential risk of the transaction being fraudulent (either by the customer or the merchant).

Merchant accounts and payment gateways then roll those rates on to you with their own pricing scheme, often separating payments into classes of “qualified” and “non-qualified” payments. Qualified payments are charged the advertised “starting at…” rates, while non-qualified payments are charged increasingly higher rates depending on different factors.

This pricing system, commonly referred to as three-tier pricing (Wikipedia), is very common with traditional merchant account providers. Transactions are determined to be either “qualified”, “mid-qualified” and “non-qualified”, in which the last two have additional fees added on top of the pricing on the provider’s marketing page (often 1%-1.5% over the quoted rate).

Classes of payments and fees

So what separates different payments into the three tiers? there is not much transparency in this regard, and it varies greatly between different merchant account providers and payment gateways.

  • Rewards cards (travel card, point cards, loyalty cards) and business cards are almost always non-qualified or mid-qualified. According to the Wikipedia article above, that could constitute up to 40% of the card transactions at your business.
  • Card-not-present transactions – transactions that are not swiped, but rather keyed-in, often receive lower qualification due to the supposed increased risk in processing those. For businesses who use online software for payments, the majority of transactions will fall under this category.
  • Offline transactions – transactions that happen automatically, such as recurring payments, without the direct authorization of the card holder for each transaction. Again, increased risk for the credit-card company downgrades those payments to non-qualified.
    Even if you swiped the card originally when adding it to a member’s profile, all future payments, either recurring or on demand using the card on file, will be considered offline transactions, and will typically be charged the highest, non-qualified rate.

What we see here is that for a membership based business, such as a martial arts school, a fitness gym or a yoga studio, most of the transactions will be considered non-qualified and be subject to much higher fees.

For example, take a look at PaySimple’s pricing page – while pricing starts at 2.49% per transaction, the non-qualified rate is actually 3.79% (or 3.9% for rewards cards) which is much less attractive.

Additional fees may sneak up on you

Aside from the percentage based fee, there are many other additional fees that add up quickly and form a substantial part of your overall gym payment processing fees. Continuing with the above pricing example for PaySimple, those are the fees quoted on their site:

  • Processing software – $59.95 / month
  • Per transaction fee – $0.29
  • Chargeback fee – $25.00
  • Daily batch fee – $0.29
  • On file fee – $5.00 / month
  • PCI Tool – $4.95 / month
  • PCI Non-compliance fee – $34.95 / month

Some of those are not completely clear (why are you paying for a PCI tool and a non-compliance fee? are those mutually exclusive?), however most everything on this list is very standard with merchant account / payment gateway providers, and it adds up quick.

Let’s run a quick simulation – If your payment volume is $12,000 per month in 100 payments, and you’re paying on average 3.5% + 29c per transaction (assuming most payments are recurring payments which are not qualified), that means your transaction fees alone are $449 per month.

If you add the other fees, it comes to around an additional $140 a month (I accounted for 1 chargeback, and a daily batch fee for 30 days), which is an additional 30% increase in fees!

This is far from what you might have initially assumed seeing that 2.49% rate shown in a large font on the main pricing page.

Flat Fee Payment Processing

This fee structure is especially unforgiving for online / recurring payments, due to the higher risk profile assigned to it by the credit-card companies. As online payments became more ubiquitous over the last couple of decades, a new category of Internet oriented payment processing companies has emerged, offering a completely different pricing format.

The best known early player in this category is PayPal. PayPal was one of the first payment processing companies to focus on Internet transactions, initially using their online wallet and eventually providing all kinds of eCommerce tools (and now also in-store solutions).

Other well established companies in this space include, Stripe and Braintree (later acquired by PayPal). Square, initially focused mostly on card swiping with a mobile device attachment, now also provides flat fee eCommerce services.

Those companies offer a flat fee without qualification for online transactions at 2.9% + 30c per transaction. They also provide a small discount for swiped transactions, typically reducing the percentage rate to 2.7%. While this might seem higher than the advertised rate of 2.49% for conventional payment gateways and merchant account providers, in effect it’s in most cases much lower for subscription based businesses, and businesses that keep cards on file to charge their customers on demand.

Most of these companies also keep the additional fees to a minimum, with no monthly or batch fees aside from (that charges $25 / month). The higher base rate allows them to absorb the cost difference when processing rewards cards and different card brands, such as American Express, which charge more per transaction, thus simplifying costs for the merchant.

Note: international credit-card transactions carry different fees in some cases, depending on the originating country. Also, countries other the US have different rates compared to those shown above, however the comparisons are the same.

The reason for the lack of monthly fees, is that those companies operate as payment aggregators instead of provisioning merchant accounts for each user. Payment aggregators use their merchant account to collect the funds on your behalf, and then pay it out in batches directly to your bank account in a short time delay (typically 24-48 hours after the transactions have been made).

Avoiding the need for an individual merchant accounts eliminates the monthly costs (aside from, which works with an actual individual merchant account for each merchant), and allows those companies to have strong bargaining power with credit-card companies, which allows them to offer overall lower rates for online payments (instead of merchants individually negotiating rates with a much lower volume).

Comparing Processing Fees With Different Membership Management Software

Gymdesk specializes in providing management software to gyms, martial arts schools, yoga studios, gymnastics gyms and other membership / club businesses.

We’ll compare our gym payment processing fees with 3 other membership software companies, with an example scenario for a typical martial arts gym. We tried to present it in the most neutral way possible, but if you think perhaps this scenario was arranged to end up in our favor, you are welcome to repeat the same calculation with the numbers in your gym to see what you end up with.

Before we get to the comparison, we should note that unlike the other providers in the comparison, we keep a distinct separation between us and the actual payment processing company.

We currently integrate with 4 such companies – Stripe, Square, and Mollie – and while we help you set up your account and the integration is completely transparent while using our system, your account with them is most certainly yours. As such you have complete control over your members’ payment information, and can keep using it even without using us as the membership software. We also don’t charge any additional fees beyond what the payment processor charges.

For the purpose of this comparison, we’ll use Stripe’s fees to represent us. Stripe covers the most use-cases and thus is the easiest to use for this comparison.

QualifiedNon-qualifiedDirect DebitMonthlyChargeback
Mindbody2.75%3.5% + 15c1% + 50c
+ $6 declines
+ $5 refund
($15 minimum)$25
Perfectmind2.09%3.49% + 25c 14c
($10 minimum)
$20 / month
+ $8 AMEX
+ $15 ACH
2.49% + 25c
(AMEX 2.89%)
3.9% + 25c
(AMEX 3.99%)
+ 29c per daily batch
+ $2.5 declines
+ 55c refunds
2.9% + 30c2.9% + 30c0.8% ($5 cap)0$15 / $0

We’ll use our original example, for a monthly payment volume of $12,000 in 100 transactions. We’ll assume 90 of these transactions are active members on recurring billing (i.e, offline transactions which are non-qualified), and 10 are new members which are swiped in where possible and, to keep it simple, don’t use rewards cards or other non-qualified cards. We’ll also include 1 chargeback per month, which we defend successfully (Stripe is the only company on the list which will refund the chargeback fee if you defend it successfully).

Mindbody10 x $120 x 2.75%
= $33
90 x $120 * 3.5%
+ 15c x 90
= $391.5
$25 chargeback$449.5
Perfectmind 10 x $120 x 2.09%
= $25.08
90 x $120 * 3.49%
+ 25c x 90
= $414.5
$28 / month
+ $25 chargeback
10 x $120 x 2.49%
+ 25c x 10
= $32.38
90 x $120 * 3.9%
+ 25c x 90
= $433.7
$10 / month
+ $25 chargeback
10 x $120 x 2.9%
+ 30c x 10
= $37.8
90 x $120 * 2.9%
+ 30c x 90
= $340.2
$0 chargeback$378

The end result being that despite a promised lower rate, due to the tiered system and the way most payments are handled at membership based businesses, Stripe ends up costing the least to process the same amount of membership payments by a significant margin. A chargeback or two more in the same month, would increase this difference significantly.

This is by design and not just a happy coincidence – we chose to use those payment partners specifically because they offer the best solution for the kind of business we aim to serve.

Final Thoughts

Payment processing is one of the biggest headaches and potential pitfalls for gym owners and managers. We focused mostly on processing fees in this article, but there are other considerations as well – such as features, transparency and especially vendor lock-in.

We hope this article helped you understand better what to look for when considering the cost of payment processing. In our next article, we’ll dive deeper into how payment processing actually works with online software, what is the difference between a merchant account and a payment gateway, and what is the easiest way to get started processing payments at your gym, studio or school.

If you have any questions, please leave it in the comments below!



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Published by Eran Galperin

Eran has been building software and companies for over 15 years, and is a black belt in Brazilian Jiu-Jitsu. In 2016 he founded Martial Arts on Rails, online software for managing gyms and martial arts schools.

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