Posts Tagged ‘merchants’

This is the second post about the fees you pay to accept credit card payments from your customers. The first post introduced the topic and offered an overview of the process.

Understanding your credit card processing fees is the only way to determine whether you are paying a competitive rate, or, dare I say it, a “sucker” rate . All too often, those who stand to profit from these fees rely on the fact that the fees are complex, and that the business owner will just accept the price as an unavoidable cost of doing business.

I’m going to lay this out for you, in hopes that you will be able to look at your credit card processing statement and know whether you should be happy–or need to be shopping around for a better processor.

Your fee structure will most likely be one of two possibilities: Tiered or Interchange Plus. Either way, if your statement does not clearly list the number of transactions, the volume (sales), and the associated fees for each line, you are not getting the whole picture. If the statement lists all of these elements, but not on the same line or page, it may indicate that they are mismatching the timing of the transactions and the fees related to those transactions.

A Tiered statement will list your transactions as Qualified or Non-qualified, or in three-tiered form, Qualified, Mid-qualified, and Non-qualified. The statement may list a Qualified rate, then charge you extra for transactions that clear as Mid- or Non-qualified. Alternatively, you may have a rate for each Tier. Either way, you will have a hard time knowing how much over interchange cost you are paying with this type of rate structure. The statement is easy to read because there is little detail – which appeals to some business owners. Like it or not, this is probably not the best pricing structure if you want to nail down your fees.

I found a sample Tiered statement on the web, and made some notations to illustrate what I’ve described (rt-click, view image to see the whole thing):

An Interchange Plus statement is very different from a Tiered one. In this case, “Interchange” means the rate that Visa or Mastercard charges, passed through at cost. The “Plus” refers to the fee the processor charges for their services. You might have a dozen different rates or more, based on the cards your customers present, and how they are entered (swiped, keyed, internet, etc). With the “Plus” fee clearly listed, you pay the same processing rate regardless of how the cards qualify.

So the big question is, how much should the “Plus” be? I’ll tell you straight-up: you should be able to get 0.15% above the interchange. If you are a larger merchant, you may be able to do better. Even if you are a small business, you should be able to get this rate. Let me be clear – this rate is the primary component of your overall “Plus” fees, but not the only one. I’ll go over the other fees and costs in the next post. I have been searching the internet for a publicly available Interchange Plus statement to provide as an example – and I didn’t find one after looking for a long time! I’ll type out a quick example:

1. MC Merit 3 Base – $500.00 – 2 trx (1.58% & 0.10/trx) = $8.10
2. MC Merit 1 Key Entered – $500 – 2 trx (1.89$ & 0.10/trx) = $9.65
3. VS Retail Base – $500 – 2 trx (1.54% & 0.10/trx) = $7.90
4. VS Retail Key Entry Sig Prefrd – $500 – 2 trx (2.10% & 0.10) = $10.70

Ok – you get the idea. The rates listed in the example above are the costs charged by MC and VS – before any fees to your processor. If your processor is charging you 0.15% and $0.10 per transaction, you will pay processing fees for each transaction as follows:

1. MC Merit 3 Base – $500 – 2 trx (0.15% & 0.10/trx) = $0.95
2. MC Merit 1 Key Entered – $500 – 2 trx (0.15% & 0.10/trx) = $0.95
3. VS Retail Base – $500 – 2 trx (0.15% & 0.10/trx) = $0.95
4. VS Retail Key Entry Sig Prefrd – $500 – 2 trx (0.15% & 0.10/trx) = $0.95

So a quick comparison of the Tiered example and the Interchange Plus example reveals that the Tiered Qualified rate of 2.20% is 0.68% above the base rate. The underlying costs from Visa and Mastercard for the transactions in the Qualified category probably vary – but those amounts are not listed. That means you don’t really know exactly what you are paying for processing fees. With Interchange Plus pricing structure, you can see very clearly that no matter how the transactions qualify, you are paying 0.15%. Big difference–in money and in clarity.

Now is a good point to bring this article to a close. Look for my next post, where I will tell you about the per transaction fees, and the various “other fees” that are almost always part of the total cost of accepting credit cards.