Your effective rate is total fees divided by total card sales. It takes two numbers and one minute, and it tells you more than the rate you were quoted.
Start with one number: your effective rate
Find two figures on last month's statement: the total fees you were charged and the total card sales you processed. Divide fees by sales. That percentage is your effective rate, and it is the only number that lets you compare one processor with another.
The rate you were quoted when you signed up is rarely the rate you pay. The quoted rate usually covers one kind of transaction. Your effective rate covers all of them, plus every monthly and annual fee.
The three layers of cost
- Interchange: set by the card networks and paid to the bank that issued the customer's card. Every processor pays the same interchange.
- Assessments: small fees paid to the card brands themselves. These are also the same everywhere.
- Processor markup: what your processor adds on top. This is the part that differs between providers and the only part you can negotiate.
Common pricing models
Interchange-plus pricing shows the interchange cost and the processor's markup as separate lines, so you can see what you are paying for. Flat-rate pricing charges one percentage on everything, which is simple and often more expensive at higher volume. Tiered pricing sorts transactions into buckets the processor defines, which makes statements hard to check.
Cash discount and dual pricing programs pass the processing cost to customers who pay by card. Rules for these vary by state and card brand, so make sure any program you consider is set up to comply with them.
Fees worth questioning
- Monthly minimums that charge you when sales are slow.
- PCI non-compliance fees, which usually disappear once you complete the annual questionnaire.
- Equipment leases that run for years and cost more than buying the terminal.
- Statement, batch, and annual fees that were not in your original quote.
- Early termination fees. Check your contract before you switch.
What to do with the answer
Calculate your effective rate for three recent months. If it has crept up without your sales mix changing, your markup probably has too. Bring those statements to any processor you are considering and ask them to show the same months at their pricing, line by line.