Braintree is a payments company that has done a great job of attracting startups, including some very successful ones like 37signals and Living Social. Their website is much easier to understand than most merchant account providers, and people say good things about their customer service. Also, their gateway has a more modern API and much better documentation than most other gateways.
Though merchants know that Braintree is more expensive…the question is: how much more expensive is it? And is it worth the extra cost?
Braintree prefers to bundle its gateway with a merchant account from either First Data (shows a Braintree logo at the top) or Equity Commerce (says Equity Commerce at the top). They used to bundle their gateway with a merchant account from Chase Paymentech. While Braintree is known for its gateway, it makes much more money off reselling the merchant account.
Most merchants don’t know that they can use Braintree’s gateway and bring their own merchant account if they want (the only caveat is that the merchant account must be either on the First Data network or the TSYS network). We’ll take a look at a couple of ecommerce merchants who use the bundled solution.
Before jumping to any conclusions, I’d like to point out that I’m doing an objective analysis looking at Braintree’s website and data from their customers’ statements. We get a lot of statements from Braintree customers who wonder if they are paying too much for credit card processing and want to comparison shop. To start, let’s take a look at the pricing offered on Braintree’s website.
Braintree’s Truth In Pricing Guarantee is More Complicated Than It Might Sound
Braintree is aggressive in advertising “Truthful Pricing,” which is good. However, below we will analyze the accuracy of their Truth In Pricing Guarantee.
To the left are the price and terms actually advertised on their website. This pricing structure is called “tiered pricing.” It means that when certain cards are transacted they fall under the “qualified” category which has a lower rate, while others are “non-qualified.” A huge factor of the overall cost of Braintree is the proportion of transactions that end up being “Qualfied” vs. “Non Qualified”. Historically payments companies have used that kind of tiered pricing to their advantage to make more money without the customer noticing.
Braintree claims that 70% of their transactions are Qualified, and the nonqualified rate ”Applies to some Visa, MasterCard, and Discover rewards, business and international cards…”
Is Braintree Being Accurate About The Proportion of Transactions that are “Qualified”?
Ok, now that we’ve looked at Braintree’s pricing on the website, let’s take a look at the statement of one of their customers. On the top “VS + VD + VB “are the total amount of Visa sales – $70,365. And then below you can see “Visa Non Qualified” totals $31,892 of volume – around 45% of the total. For Mastercard the result is similar, with $23,479 of volume $15,743 is NonQualified, or 67% of the total. With Discover, 100% of the volume is Non Qualified. Overall, 52% of the transaction volume is Non Qualified, significantly more than the 30% advertised on their site. Why are those transactions downgrading? It isn’t clear from the statement, and if the customer were to look at his contract he would likely see that whether a transaction downgrades or not is basically at Braintree’s discretion.
Another example, even worse. These guys only had $3,357 of Visa and Mastercard transactions, and $2,937 of them were charged the Non Qualified Rate, 87%, a lot higher than the 30% advertised on the website.
Are the Braintree Rates Always As Advertised?
Let’s look at another example. This statement is from a different Braintree customer and is in a different format.
This one is strange because the rates do not match the advertised rates on the website, with the “qualified” rate somewhat higher and the “nonqualified” rate somewhat lower and the overall rate somewhat higher. In this case the qualified rates are 33%, which is more in line with what Braintree advertises, but still higher.
What Exactly Is a Braintree Merchant Account?
Braintree actually isn’t a credit card processor, there actually are only a few credit card processors in the US, because building a credit card processor is very expensive ($10M+), while buying capacity from an existing credit card processor is very cheap (as low as $0.02 / transaction). There’s nothing wrong with that, of course, almost every merchant account provider is in the same situation – the technical word for it is ISO (Independent Sales Organization – Visa maintains a list of all of them here).
When you sign up for a Braintree merchant account you get either an account with First Data (the largest credit card processor) or with Equity Commerce, which is also an ISO. Braintree, like any ISO, is in charge of acquiring customers and doing some customer service. However, for any issues involving the actual credit card processing network, the processor needs to be consulted.
Braintree Makes a Lot More Money Off the Merchant Account Than The Gateway
Since they let customers buy the gateway on it’s own we can “unbundle” the Braintree merchant account, as shown in the below spreadsheet.
Keeping the Braintree Gateway But Using FeeFighters For The Merchant Account Can Save you $25,000.
The cost of the Braintree gateway, on a standalone basis, is comparable to the rest of the other gateways out there, but the merchant account is expensive and you can save a lot of money by choosing a Braintree-compatible merchant account from the FeeFighters marketplace (or somewhere else, but BE CAREFUL). The example customers above all did so and saved big. For the new startup company (Customer C) It was $40 / month, which might be small enough to ignore. But for the more mature startups (Customers A and B), the savings were significant.
The customers above kept the gateway they were familiar with and liked, switched the merchant account from the one that Braintree sold them to another merchant account that is exactly the same, and saved a lot of money that they could spend elsewhere on their business.
What’s the conclusion?
You might think we purposely chose two egregious edge cases to analyze, but the three examples highlighted could have been any one of the statements we have received from Braintree customers. They are usually shocked and upset that a company that came so highly recommended was overcharging them by that much. They don’t feel a tangible change when they switch merchant accounts and keep the same gateway.
At FeeFighters, we see this every day as we try to fight an ecosystem that favors credit card processors and screws over business owners. If you have a sneaky suspicion that you’re overpaying for credit card processing, you probably are. We’re happy to help you see how much you can save by using the competitive marketplace on FeeFighters where processors compete for your business.
ps We call out questionable practices as we see them…this is part of the FeeFighters mantra. Check out other investigative posts (including this one about the BBB) on our blog.
The statements used for this analysis, with confidential information removed are available here: