Hidden Truths: 3 Credit Card Processing Fee Structures
Getting the Most From Your Credit Card Processing Fees
With Arrow Payments Solutions
We know credit card processing fees are as exciting as a root canal, but as a business owner, paying too much can be just as painful. Which of these rate structures are you under? Are you keeping the most revenue possible?
What are Interchange Rates?
Interchange Rates are the fees paid to the credit card companies for every transaction regardless of who your processor is. These rates are determined by a few factors:
- Card type (debit/consumer/rewards/corporate/purchasing)
- The amount of the transaction being charged
- Whether the card is swiped (card present) or typed in (card not present)
- Type of business (grocery/restaurant/non-profit/etc).
How much does Visa/MC/Amex/Discover charge for each transaction?
Twice a year, the credit card brands come out with their schedules of fees and categories that each transaction can fall under. Each credit card company sets their own rules for how transactions are categorized and their associated fees. Currently, there are 500+ categories of Interchange Rates! Here are links to the Interchange Rates for Visa & MasterCard. Like when you are faced with picking from 500 flavors of ice cream, how do you know which one is meant for you?
So what fees are you paying?
Below are the 2017 fees for debit cards from Visa. Notice how low the processing rates are! Why is that? Because debit cards draw money directly from a person's bank account, so there is a lower risk of the processing company not getting paid. Makes sense.
A majority of the rates are determined by the CPS, or the Custom Payment Service. The CPS sets custom rates for each transaction and gives you the opportunity to get lower processing fees by ensuring that credit and debit cards are validated and processed as securely as possible. Below are some of Visa’s fees for non-debit cards.
Do you have Flat Rate Pricing?
When choosing a credit card processing company to handle your transactions, a few “features” might stand out. Many processing companies like Stripe, Square, Braintree, Authorize.net, Intuit Quickbooks and even PayPal offer Flat Rate pricing that charges 2.9% or more plus $.30 per transaction. This might sound like an easy solution, but it can end up costing you more than you should be charged per transaction. This is especially true if you process a lot of debit cards.
With Flat Rate credit card processing, the processor charges the same rate for all transactions which is typically set much higher than the Interchange Rates. The processor then keeps the difference between the flat rate they charge and the Interchange Rate charged by the credit card companies. Does that seem fair? No way, Jose.
Do you have Tiered Rate Pricing?
Most established businesses are on tiered pricing, which provides a few different transaction rates that are unclear and expensive when compared to interchange pricing. Basically under tiered pricing, the credit card processor decides what tier each transaction will qualify for. These tiers dictate the rate you will be charged for each transaction. The problem with tiered pricing is that the tiers are arbitrarily set by the processor.
Many processors advertise a artificially low "Qualified Tier" as a teaser rate to get your attention, but many of your transactions will not "qualify" for that tier. The processors will also add hidden fees on top of the tiered pricing. So you think you are getting a great rate, but it is difficult to figure out which transactions will end up in which tier.
This also makes it impossible to avoid paying unnecessary fees. When you receive your statement, the total fees are much higher than the low teaser rate you thought you were getting. The tiers set by the processor are completely unregulated and have nothing to do with what Visa, MasterCard, Amex, or Discover charge for their Interchange Rates.
Therefore, Tiered Pricing is not the best option. What’s left, you say? How can you possibly streamline this complexity AND keep the maximum amount of revenue and profits in your business?
Simple. Let us introduce you to Arrow Payments preferred pricing system!
The solution is Interchange Plus Pricing
With Interchange Plus, you pay the same fees that the credit card companies charge plus a small percentage. As an example, Arrow Payments typically charges 0.3% on top of the Interchange Rates depending on the credit card processing services, training and support a client needs. Companies who process higher volumes of revenue can sometimes qualify for lower pricing. We also have automated technology to make sure every transaction is optimized for the lowest interchange rate possible.
As a result, your transaction fees are calculated on their actual cost rather than arbitrary rates set by the processor, and with Interchange Plus, you can seriously cut down on fees compared to Flat Rate or Tiered Rate credit card processing.
Traditionally, Interchange Plus pricing has only been available to businesses that have larger amounts of credit card sales. However, the market is becoming more competitive, and smaller businesses can now qualify for Interchange Plus pricing.
Finally, a credit card processing structure that makes sense AND keeps the most profit in your pocket!