Accepting credit cards has become a necessity for most businesses today. Unfortunately, navigating the landscape of the merchant services industry can be challenging to say the least. The most common questions I hear from potential merchants are “What will my rate be?” and “How much does it cost to accept credit cards?” The real answer to this question is “it depends” although understandably that isn’t what most business owners want to hear. American Express is pretty straight forward, but also expensive, at around 2.85%. However Visa, Mastercard, and Discover are each known as card associations that each have their own rate sheets known as Interchange Reimbursement Fees. These fees make up the majority of what you pay to your processor and they vary greatly depending on the card type accepted. This means that the interest rate you pay varies depending on what type of card your customers use (corporate rewards cards, mileage plus cards..etc).
So to price a merchant account, your provider is going to do one of three things…
Merchants can now process at a Flat Rate by selecting our Cash Discount Program. THE WAVE OF THE FUTURE! Gives the merchant the option to access “all the fee’s” to the card transaction. This now has become the best option to control the all fee’s associated that a merchant pays to accept a credit card. The Cash Discount software helps calculate the “TRUE COST” of the sale to the customer versus a cash or check transaction.
The second option is Tiered Pricing. The most common type of tiered pricing is called three tiered with separate rates for qualified, mid-qualified, and non-qualified transactions.
Each tier contains a number of Interchange categories. The average Interchange rate for “qualified” cards on swiped transactions is currently around 1.51% plus 10 cents per transaction. But remember, that qualified rate depends on the type of card your customer paid with, and mid-qualified and non-qualified cards (typically business and rewards cards) often have surcharges ranging from anywhere from 1.85-3% ON TOP OF your “qualified” rate.
Each tier is obviously priced high enough to cover the rate for the most expensive card in that category. And what’s worse, it allows many processors to quote a “qualified rate” that seems very low only to hit unsuspecting customers with VERY high mid and non-qualifying rates and surcharges that are difficult to understand on their statement.
On the front end, tiered pricing appears much simpler to the merchant, but it actually makes it much more expensive because it allows the merchant account providers the opportunity to add on extra markups so the merchant is effectively paying 2 markups. Their “qualified” rate PLUS their “mid or non” qualified rates.
Which makes processing costs 2-3 times more expensive for a merchant.
It is impossible to know which rate or tier your customers cards will fall into and you end up paying unnecessary fees each time a customer pays with a card that does not fall into the acquirer’s strict definition of “qualified” cards.
Finally there is Interchange Plus (what we recommend) also known as Cost Plus. This pricing gives the customer a fixed rate over published Interchange Fees. You pay the base credit card processing rate (Interchange rate) with a fixed markup.
With Interchange plus pricing the EXACT interchange is passed onto the merchant with the flat processors mark up. The great thing about Interchange Plus pricing is that you always know exactly what you are paying to your processor to service your account.
Think of Interchange, and all the associated fees, as an unavoidable cost. No matter who you process with, you have to pay these fees. They may be labeled differently, or wrapped up in a confusing pricing tier, but one way or the other, you are paying Interchange fees. By understanding the markup you pay over Interchange, you know exactly what you pay to your processor and exactly what is going to the card associations.
Interchange plus is the most transparent, cost effective form of merchant account pricing. By passing the interchange fees directly to merchants with a fixed mark up, surcharges and hidden costs are eliminated. It takes all the mystery out of the question most merchants share, “What am I actually paying for my credit card services?”
Of course there are other things to consider when selecting a merchant services partner. How is the customer service and support? Do they offer a 24×7 help desk? How long do they take to fund my account? Are they holding a reserve or delaying my funding? Are there other monthly, quarterly or annual fees required?
Will their systems and supported technologies meet my needs? Do they offer an affordable PCI-DSS compliance program?
Overall, there is much to consider, but if you find a provider that offers a competitive rate, helpful service, and technology that meets your needs, you probably have a good partner.