Credit Card Rates & Fees
The credit card processing industry is one of the most opaque areas for a business to easily gather information and make an informed decision. Information on fees, charges and equipment costs is not readily disclosed and it is almost impossible to understand how much credit card processing is going to cost you until after you have signed up with a merchant processor and received your first statement. Many processors also expect you to sign a long-term contract for their services, which means that you could be stuck with unfavorable rates for a year or more.
To help you combat this lack of transparency, we have put together in-depth information on credit card processing terminology, options and fees, along with equipment options and online payment options. We hope that this information will help you learn how you can significantly reduce the cost of this service for your business.
Q: Okay - so it sounds like this will save my business money. How much can I save?
The merchant processing vendor that we recommend offers fixed margins of 0.25% and $0.10 per transaction above Interchange fees for your storefront payment processing fees.
How much you will save will depend on the effective rate being charged by your current merchant processor, the types of cards you process (see right sidebar for rate examples from our MP partner) and your overall credit card sales each month.
The effective rate is the rate that includes all of the fees that you pay each month for things like batch processing, annual merchant service fees, PCI compliance fees, monthly minimum sales fees, etc. To figure this out, find your statement from your current processor and add up all of the different fees to determine your total fees - some merchants total them up for you on a summary page. Divide the total fees by your total sales for the month and then take the result and multiply it by 100 to see your effective percentage rate.
For example, Business XYZ has:
Total sales of $ 11,250.00
Total fees of $ 416.25
The math:
Divide $416.25 by $11,250 to get 0.037
Multiply by 100 to get 3.7%
Their effective rate would be 3.7% - which we would guess is a lot more than the rate they were told during sign-up.
What are the Processing Fees on a $100 Sale using our MP partner ?
| VISA Regulated DEBIT Card | % Fees | Flat Fees | Total Fees |
|---|---|---|---|
| Interchange Fees (0.05% + $0.22) | 0.05 | $0.22 | $0.27 |
| Card Brand Fees (0.11% + $0.02) | 0.11 | $0.02 | $0.13 |
| Processor Fees (0.25% + $0.10) | 0.25 | $0.10 | $0.35 |
| VISA CPS Retail - CREDIT | % Fees | Flat Fees | Total Fees |
|---|---|---|---|
| Interchange Fees (1.51% + $0.10) | $1.51 | $0.10 | $1.61 |
| Card Brand Fees (0.13% + $0.02) | $0.13 | $0.02 | $0.15 |
| Processor Fees (0.25% + $0.10) | $0.25 | $0.10 | $0.35 |
| VISA Rewards 1 - CREDIT | % Fees | Flat Fees | Total Fees |
|---|---|---|---|
| Interchange Fees (1.65% + $0.10) | 1.65 | $0.10 | $1.75 |
| Card Brand Fees (0.13% + $0.02) | 0.13 | $0.02 | $0.15 |
| Processor Fees (0.25% + $0.10) | 0.25 | $0.10 | $0.35 |
Request a Free Cost Comparison
Answer a few questions and provide some basic information about your current credit card environment.
Lower Your Rates
Begin the online application process, which takes 10-15 minutes to complete and can be paused along the way, as needed, while you gather the necessary information.
Q: I thought that every business received the same credit card processing rates and fees. How can you lower my rates and save me money?
The first thing to understand is that not all merchant processors are alike in how they charge you for credit card processing. There are two primary pricing models that merchant processors use to price their services:
- Tiered Pricing Model
- Interchange Plus Pricing Model
Except in extremely rare environments, tiered pricing models are going to cost you significantly more money. This is why there are so many merchant processors that only offer this as an option, as the merchant processor makes more money at your expense. For almost every business, an interchange plus model is going to cut your costs while providing complete transparency about how fees are assessed and calculated.
Tiered Pricing
We find that most businesses are using a merchant processor that is using a tiered pricing model to determine the rates for each credit card transaction at their business. These plans almost always end up costing you more, as each transaction is assigned to a specific tier by the processor that determines the specific rate for that transaction.
When showing their pricing plan, the merchant processor will generally advertise the tier with the lowest rate to catch your attention - after all, we all want to pay 1.5% per transaction or a similarly low rate. In reality, however, most of your card transactions won't get this rate and will instead get a higher rate, which as you see can be twice as high, or higher, as the lowest rate.
Here is a real-life example of tiered rates from a merchant processor that one of our clients was using:
- Tier 1 : 1.64%
- Tier 2 : 2.64%
- Tier 3 : 3.64%
This customer's effective rate for all transactions turned out to be 3.84%, which was over double the Tier 1 rate that was advertised to them when they signed up with their old processor. We explain effective rate in more detail in the next section.
Tier 1 (Qualified or QUAL) is typically:
- swiped consumer non-reward credit cards
- swiped debit cards
Tier 2 (Mid-Qualified or MQUAL) is typically:
- swiped reward cards
- manually keyed-in consumer non-reward credit cards
- manually keyed-in debit cards
Tier 3 (Non-Qualified or NQUAL) is typically:
- business-issued credit cards
- upper-level reward cards
- manually keyed-in rewards cards
- e-commerce transactions that are processed without the customers billing address
The first thing that you can see is that there is a big difference between the rates for each tier. The second, and most important distinction, is that the processor ultimately makes the decision as to which tier a transaction is assigned. This, in our opinion, presents a conflict of interest, as the processor makes more money when your transactions are 'downgraded' to a tier with higher rates, as they are still paying the same Interchange fees to the banks regardless of which tier your transaction is assigned.
Interchange Plus Pricing
To explain this model, we need to break this down into two components: the Interchange fees and the Plus fees.
Interchange fees are often referred to as wholesale credit card processing fees - the fees charged by Visa, Mastercard (MC), Discover and American Express (Amex) processing systems (this money goes to the banks), along with the card association fees (this money goes to Visa, MC, Discover & Amex).
Regardless of whether your processor uses a tiered model or an interchange plus model - the interchange prices that the merchant processor is charged by Visa, MC, Discover and Amex are the same. Within each interchange system there are different rates for different types of cards, i.e. debit, non-rewards credit, rewards credit, corporate (business-issued) credit, etc. There are also different rates depending upon whether the transaction was a card-present (swiped by you or the customer) or card-not-present (a sale over the phone or an online sale).
You can see the interchange (wholesale) rates for Visa and Mastercard (who publish their rates for the general public) using the following links:
Visa Interchange Rates
Mastercard Interchange Rates
The card association fees for domestic debit or credit card transactions are between 0.12-0.16%, which equates to $0.12 - $0.16 on a $100 sale. There are other small fees that can be charged by the card associations, but almost all are avoided if the business correctly processes credit cards and settles the charges within 24 hours.
There are also small fees for address verification on manually-entered transactions, batch processing fees, etc. You can see a full list of our MP partner's extra fees here.
Plus fees are the fees charged by the merchant processor and are typically referred to as 'markup'. Each processor that offers Interchange Plus pricing will have fees for each transaction, whether a percentage fee or a flat rate fee or some combination of each fee type, which is essentially their gross profit for offering their processing services to you.
To get your rate for each transaction, you take the Interchange fee (wholesale) and add the Plus fee (markup) to get your final rate. If it sounds too simple, its because it is simple and easy to understand pricing - and easy to confirm each month that the rates that you are being charged are the correct rates.
Q: How do I pick a merchant processor that provides Interchange Plus pricing and transparency with their fees?
We have thoroughly researched the top merchant processors (MP) in order to provide recommendations to our clients for this important and necessary service. During our evaluation process, we had three simple criteria that had to be met in order to be considered for evaluation:
- The MP had to base their fees off of an Interchange Plus model instead of a costly Tiered model.
- The MP had to be a Preferred Reseller of Authorize.net so that our clients could also lower their online credit card processing costs.
- The MP had to be completely transparent with their fee structure, contract terms and equipment requirements - and not require a long-term contract.
As we evaluated MP vendors, there were many that could meet requirements #1 and #2, but Dharma Merchant Solutions was ultimately chosen, as they were the only one that we could find in all of our research that met requirement #3. While this placed them at the top of our list, the following additional facts solidified their position as the choice for our clients.
Dharma saves you money with:
- No Annual Fees
- No Monthly Minimum Fees
- No Leasing / Rental Fees
- No Monthly PCI Fees
- No Early Termination Fees
DISCLOSURE: In an effort to be fully transparent, we want to let everyone who visits this website know that we are compensated by Dharma for each business that we refer and who signs up to use their services under the terms of their Partner Program. This win-win relationship allows Dharma to minimize their sales and marketing costs, while allowing our business to earn extra revenue to pay for the research and write-up of this type of comprehensive website content that ultimately saves your business money. We are very cautious about who we partner with and look for partners with which we can build long-term relationships that benefit our clients. Our own business is a proud Dharma customer and we hope that you will join them as a customer, too.
If you have found the information on our website valuable in your decision-making process, we would appreciate being listed as the referring website when you sign up. Thank you in advance for your consideration.
Q: Okay - I can definitely save money each month. How do I get started moving over to your recommended merchant processor and most importantly, how much is this going to cost me?
The process is actually very easy - you can request a free cost-comparison or go ahead and start the application process.
The free cost-comparison requires you to send over at least one (1) month of statements from your current merchant processor or input the data into our online form. The data from the statement will be used to determine the types of credit cards that have been used by your customers and will be used to give you a quote sheet that shows your current costs and what your costs would be with our MP partner.
If you don't need a quote and are ready to move forward with the sign-up process, you will complete a online application, which takes about 10-15 minutes to complete and can be paused/saved along the way in the event that you need to gather some of the data. Our merchant processor partner will need 3-6 months of your current merchant processing statements, as these are used to determine the average number of transactions by the various card types and ensure that your business is setup optimally to save you the most money.
Costs
If you use point-of-sale (POS) equipment or software, this equipment may have a programming fee charged by the POS vendor and these fees can vary. If you need assistance in finding out how much this will cost for your particular situation, we are here to assist with contacting them on your behalf to take care of the technology talk.
If you don't use any POS equipment, your costs will be limited to a card reader, and possibly a PIN-pad if you require the ability for your customer to self-swipe their card or input debit card PIN information.
A typical EMV (chip credit cards) compliant reader will cost you around $300, while an accompanying PIN-pad for customer usage costs an additional $200. These can be purchased via an interest-free payment plan over a 3-month period, if needed.
All of the equipment that is sold to you is new - not used or refurbished like some other MP vendors. Our MP partner does not do any equipment leasing, as they feel that is another dark/shady side of the merchant processing industry - great for the processor and terrible for your business. The equipment that you are sold is state-of-the-art and is fully programmed and tested prior to be shipped out.