The Payment-pedia

Recently we conducted a survey regarding what topics our readers would like to see covered.  67% of all of the readers that took the survey indicated that they wanted more information on Credit Card Rates.  We will attempt to give you an idea of what is the “real” wholesale cost of processing to your merchant services company.  Our goal is to help you get some clarity as to how much of your money is going to whom.

Please Note: The information included below is a summary of wholesale rates which is estimated based on the most common card types for each category.  For more specific information regarding interchange (wholesale) rates, see the links to the Visa and MasterCard websites located at the bottom of this article.

First, A couple of facts about the rates you pay as a merchant who accepts credit card payments through a merchant account:

• Visa, MasterCard, Discover, and American Express all set their brand’s wholesale rates.  There is almost no negotiating leverage that any merchant acquirer* has to get a better “deal” than another.  (Examples of the wholesale rates are provided below)
• The interchange or “wholesale” fees are taken by the card brands and shared among the card issuer, acquirer, and processor.
• The fees you pay for the merchant account can be broken down into three types:  Set Up (one-time fees), Monthly Fees, and Transaction Fees.   Each of these may have a cost associated with it but typically the set-up and monthly fees are almost totally profit for the acquiring company.  Transaction costs will be made up of the wholesale rates and fees as well as the acquiring company’s mark up.
• Rates can be assessed using two basic methods:
  • 1. As “tiered” rates where 3 or 4 rates are offered and the transaction method and card type dictate which “tier” the merchant pays.  (See Tiered example below) or
  • 2. As “cost plus” rates where typically a set markup is applied to the wholesale rate charged by the card brand.  This results in tens or hundreds of potential card rates.  Each method of assessment has its benefits and downsides.

Here are a couple of examples of some approximate “wholesale” card rates based on the method of taking payment, card present (swipe) or card not present (keyed)**:

• Debit Card Swiped – approx 1.05% + $0.15
• Debit Card Keyed – approx 1.75% + $0.15

• Ordinary Visa/MC/Disc Swiped – approx 1.70% + $0.10
• Ordinary Visa/MC/Disc Keyed – approx 1.95% + $0.10

• Rewards Card Swiped – approx 1.80% + $0.10
• Rewards Card Keyed – approx 2.10% + $0.10

• Corporate Card Swiped – approx 2.30% + $0.10
• Corporate Card Keyed – approx 2.50% + $0.10

• Standard Rate*** – approx 2.95% + $0.10

• AMEX Retail Merchant – approx 2.89% + $0.10
• AMEX Remote (Keyed) Merchant – approx 3.50% + $0.15

If you only pay attention to one piece of information from this article it should be this: Anything above and beyond the approximate wholesale costs above are profit that is going to your merchant provider and possibly the back end company that processes their merchants’ transactions.

For an idea of how much profit is going into your merchant providers pocket, use this 3 step process:

1. Take your latest merchant statement and divide the total Visa/MC/Discover transaction fees by the total Visa/MC/Discover sales volume for that month, this will provide you with an approximate net-effective rate.
2. Take the net-effective rate from step one and subtract the percentage rate above for the method and card type that you believe most of your business goes through.
3. The result of this is the approximate net profit rate that your merchant processor is receiving from you.  If you take this and multiply it by your approximate annual Visa/MC/Discover volume, you will get an idea of how much money you are giving your merchant services provider.

For more detailed rate information, refer to the links below:

Visa Interchange Information: http://usa.visa.com/download/merchants/october-2009-visa-usa-interchange-rate-sheet.pdf

MasterCard Interchange Information: http://www.mastercard.com/us/merchant/pdf/MasterCard_Interchange_Rates_and_Criteria.pdf

* A merchant acquirer is a company that facilitates the means of transacting merchant business.  Some companies are direct acquirers meaning that they facilitate the authorization, settlement, and funding of merchant transactions.  Indirect acquirers or ISO’s resell the acquiring services of another company.

** Note: examples do not include brand assessments or other branding fees assessed by each card network.

*** Standard Rate denotes a flawed transaction due to various factors which could include incomplete information, transaction not settled in a timely manner, etc.

Hopefully this information has been helpful.   If you have any questions regarding your current merchant provider or would like assistance in putting together a merchant analysis, please do not hesitate to contact me at takingcards@gmail.com

Have a great day!

Ben Wallace

This entry was posted on Wednesday, April 14th, 2010 at 12:04 am and is filed under Credit Card Acceptance, Credit Card Processing 101, Credit Cards, Debit/Check Cards, General Information, Merchant Accounts, Merchant Services, Rates. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.