Credit card processing fees for small business

What do credit card processing fees for small business actually cover?

Three parties get paid on every card sale, and your statement bundles them. The card-issuing bank takes interchange, the card network takes an assessment, and the processor takes its own margin plus whatever fixed fees the agreement carries.

Interchange is the largest of the three and it is set by the card networks, not by your processor. It varies by card type, by whether the card was present, and by how the transaction was entered. Nobody can discount interchange for you, and any pitch that implies otherwise is describing something else.

What is the difference between interchange plus and flat rate?

Interchange plus shows the networks’ cost and the processor’s markup as separate lines, so you can see exactly what the middle party is charging. Flat rate bundles everything into one percentage, which is simpler to predict and usually more expensive once volume grows.

• Interchange plus: more transparent, generally better at volume, harder to read on a statement
• Flat rate: predictable, easy to budget, pays a premium for that simplicity
• Tiered: transactions sorted into qualified, mid and non-qualified buckets. The tiers are defined by the processor, which is what makes it the hardest to compare

Whichever you are on, the comparison that survives is your effective rate, which our processing fee calculator works out from your own statement.

Which fees are not the rate?

• Per-transaction fee, a fixed amount on every sale. On a small basket this is a bigger share of the cost than the percentage
• Monthly statement fee
• Monthly minimum, charged when your processing does not generate enough in fees
• PCI compliance fee, and a separate non-compliance fee if a questionnaire lapses
• Batch fee, charged each time you settle
• Gateway fee, if you take card-not-present payments
• Chargeback fee, charged per dispute regardless of who wins
• Annual fees, which look small until you divide them by twelve and add them in

A quote that names only a percentage has not told you what you will pay. Ask for every line in writing before signing anything.

What is a downgrade, and why does it cost me?

A downgrade is a transaction that does not qualify for the rate you expected and gets billed at a higher one. The common causes are keyed entry rather than a dip or tap, a missing address verification on a card-not-present sale, and certain corporate or rewards cards that carry higher interchange.

Downgrades are the usual explanation when a store’s effective rate is well above the quoted one. Reducing them is mostly operational: take the card physically where you can, capture address data where you cannot, and settle daily rather than letting batches age.

How does POS credit card processing bundle into all this?

Often the register and the processing are sold together, and sometimes the hardware is cheap or free because the cost has moved into the rate. That can still be good value, but it is a different deal from the one it appears to be.

Separate the four costs before you compare anything: hardware, software, processing and support. Our POS system cost page breaks those out, and if you would rather pass the fee to the customer instead of absorbing it, that is a separate decision covered on our cash discount and dual pricing page.

How do I tell if I am overpaying?

1. Take one full month’s statement, not an average of several.
2. Add every charge on it, percentage lines and fixed lines together.
3. Divide by the total card volume for that month and multiply by a hundred. That is your effective rate.
4. Ask any processor you are considering for a full written schedule, and run the same arithmetic on it.
5. Compare the two, then compare contract terms and what leaving costs.

Most stores have never done step three. If you want a second read, send us the statement and we will go through it with you.