Great question! IT DOESN’T HAVE TO BE. In short, processing is comprised of 2 rates:
- The rate that is issued by the credit card associations (known as interchange) and
- The processor's cost of doing business (or the mark-up).
Interchange should ALWAYS be the bulk of what you are paying, but processors cannot operate for free (just like your business), so they must mark up. The mark up is supposed to include covering common office expenses like paperwork and such, but you should also be able to get a LIVE person on the phone or in person 24/7 regardless of your issue.
Want to know where the bulk of your fees are going? You can do this by figuring out your effective rate. Watch video below to learn how to calculate your effective rate percentage.
How to calculate your effective rate
To figure out your effective rate, divide one month’s total processing fees (include any daily fees if you have them) by that month’s volume. Multiply by 100.
Your effective rate should roughly be between 2.25% and 3.25% if the bulk of your fees are being paid for interchange (depending on your business model; ie face-to-face businesses should be towards the lower end of that scale). If you have an effective rate higher than 3.5%, there is a large mark up on your account. And the mark up is the variable portion of the rates! That’s right; when businesses say they are “shopping” their rates, the mark up is the only part that can be shopped since interchange is the same rate charged to all processors.
special pricing on credit card rates
Here’s something else to note: you may qualify for special pricing! Yep, that’s right…did you know that? Do you have an average ticket under $15? Are you a non-profit? Is your credit card volume more than $100,000 per month? Are you on interchange pass thru or tiered pricing? The list goes on, and the answers to these questions can have a huge impact on your business’ bottom line.
Credit Card Processing account classification
Something very important to note that I run across with disturbing frequency when I am meeting with prospective clients: many of them are not classified correctly! If you are accepting credit cards in a non-face-to-face environment but have been classified as a “retail” account (which means the majority of your business is face-to-face transactions in our world), you will automatically get the highest rates possible on every transaction you run. On the flip side of that, if you are actually a retail business but have not been classified as such, it’s highly likely that ALL of your rates are too high.
Free merchant accounts
Lastly, I’m here to tell you there is NO SUCH THING AS A FREE MERCHANT ACCOUNT. If a processor seems too good to be true, 9.9 times out of 10, they are. Either rates will balloon after the first few months OR you will never, ever, ever be able to get a live person for customer support or tech issues.
How to find out if you're paying too much for credit card processing
- Find someone who is educated in the industry and ask question after question; they can be a great resource and asset for your business!
- We provide a handy Effective Percentage Rate Calculator on our website to help you figure out what you should be paying. Simply navigate to the bottom-right side of our website and click "Calculate My Rate" to get started.