The effective rate is the rate that includes all of the fees that you pay each month for items such as: batch processing, annual merchant service fees, PCI compliance fees and monthly minimum sales fees.
To determine your effective rate, review your monthly statement and find all of the different fees to determine your total fees. Then divide the total fees by your total monthly sales. Multiply this number by 100 to convert it to a percentage and this is your effective rate.
Example: You have total monthly fees of $670 and total monthly sales of $20,000.
670 / 20000 = .0335
.0335 * 100 = 3.35%
You can use our Effective Rate Calculator to see how much you are currently paying and how much you can save with a lower rate.
Tiered plans assign each transaction to a specific tier 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:
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.
Interchange Plus includes two components: the Interchange fees and the Plus fees.
Interchange fees are often referred to as wholesale credit card processing fees: These are fees charged by Visa, Mastercard, Discover and American Express processing systems (this money goes to the banks), along with the card association fees (this money goes to Visa, MC, Discover & Amex).
There are different rates for different types of cards (debit, non-rewards credit, rewards credit, and corporate credit) and whether the the card was present or not-present.
Plus fees are the fees charged by the merchant processor. Each processor will have fees for each transaction, typically a percentage fee/ flat rate fee combination, which is the processor’s gross profit for offering their processing services to you.
To compute 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.