Merchant Rate Review

The Bottom Line on Merchant Rates

How can I reduce my bottom line fees for credit and debit card acceptance?

A quick and easy way to evaluate your card processing cost is to calculate your real rate then benchmark your rate against the average for your industry. Learn what steps others are using to lower their bottom line merchant rates and follow these best practices to reduce your costs.

What’s my Real Rate?

Reading a merchant statement or shopping for processing quotes today can be confusing.  And comparing merchant account billing from one provider to the next is a challenge, as each has a different format and billing terminology.   Marketing materials showcase “rates as low as” and you hear terms like qualified, non-qualified and Interchange pass through.  Then you have to factor in the batch fees, annual fees, compliance fees, retrieval fees, authorization fees, early termination fees, etc.

Your quoted merchant rate only applies to the Base rate!

Take out your monthly credit card processing statement and divide the total credit card sales by your total processing costs. If you were originally quoted 1.69%, does the number still come out to 1.69%? This is the heart of the matter. In the spring of 2008, Visa and MasterCard introduced new interchange categories for different cards. Each type of card now has its own interchange cost. Quite likely, a merchant with a credit card processing rate of 1.69% to accept credit cards only receives that rate on 25 to 40% of his total credit card sales. There are now more than 22 categories of interchange rates in Canada. Trying to understand the complexities in payment processing is a full time job.

So how do you cut through all the clutter?  Understanding the factors that impact your bottom line cost of accepting card payments starts with learning how to calculate your real rate.   Because what really matters is the service charge debited from your checking account, your real rate represents your true bottom line, all-in cost (the percentage of total fees on bankcard sales).

How do I calculate my Real Rate?

1. Pull one of your recent monthly bankcard merchant statements.
2. Locate the sum of all total charges and fees and write it down here:  X=_____ (total fees debited from your business checking account)
3. Calculate the total bankcard sales and write it down here:  Y=_____  (What you are looking for here is your total cost of service for processing bankcard sales.  Don’t include sales volume on American Express cards since you get charged on a separate AmEx statement for these card sales.)
4. Calculate your real rate:  X / Y = ______%    (multiply by 100 to format as a %)

What are the major Merchant Rate components?

There are three primary costs that make up your merchant rates.

1. Interchange: Interchange fees are collected and paid to the card issuing bank. Interchange is the single largest component of your merchant discount rate pricing. All banks and merchant processing companies operate from the exact same Interchange.
2. Dues & Access Fees: Dues, Assessments and Access fees are collected and paid directly to the Card brands (Visa, MasterCard, Discover). All banks and merchant processing companies operate from the exact same Dues & Access Fees.
3. Merchant Services: This is the cost of service delivery including marketing, underwriting, risk management, customer service, terminal management and the network / communication costs for authorizing, settling and funding each transaction to your business checking account.

What are the major factors impacting my cost to accept card payments?

• Transaction size:  the larger the ticket the less impact from transaction fees
• Card types accepted:  debit cards have lower Interchange rates than reward credit cards
• Acceptance method:  swiped cards have lower rates than keyed
• Miscellaneous Fees: annual fees, compliance fees, minimum fees, etc. drive up your costs
• Gross billing: Interchange should be returned when you issue a cardholder credit
• Interchange incentives: either a tiered rate structure or incorrect merchant category prevents obtaining the best merchant rates

What can I do to lower my costs of accepting credit cards?

• Insist on direct Interchange pass through pricing
• Accept PIN Debit and encourage your customers to pay this way
• Understand billing terminology – words have meanings
• Make sure your MCC (merchant category code) is accurate
• Use the right payment technology
• Bundle transactions when possible
• Move to net billing so Interchange is returned on cardholder credits
• Read the contract fine print – read it, don’t take somebody’s word for it
• Shop smart to stop corruptive business practices – your choice of vendor matters

The bottom line

Sales people always say they can save you money.  But before you jump on the next promise of savings that walks through your door, first find out where you stand.  Calculate your real rate and compare with others.  Sharing with the merchant community is the next step in achieving lower merchant rates.   Then remember that the payments industry is not a commodity business.  It is becoming more complex, with new rules and regulations, new pricing and qualification requirements, new payment technology and payment card industry data security compliance.

Find out more about the Merchant Rate Review

We know that Payment Processing can be complicated but there’s no need to tackle it all on your own. don’t neglect the importance of the payment industry professional, whose advice and assistance will save you more money in the long run.

There are many solutions available for merchants. To discover the right one for you, speak with one of our representatives. Ggive us a call at 1.800.915.6270