Sounds good, but what does that even mean? In order to achieve the best possible merchant rates, you must first understand what that entails. Attaining the best merchant rates means receiving the lowest possible credit card processing fee.
So, let’s break down the factors associated with merchant services rates, in order to achieve the best credit card transaction fees possible.
“Rates,” what does that mean?
When dealing with a processor, the word, “rates” is thrown around often. The key is to know which one you are discussing. For instance, there are interchange rates, processor’s markup rates, and qualified / non-qualified transaction rates. Not to mention, flat rates and effective rates as well.
Interchange Rates
First, you should know that interchange rates are by far the costliest component of processing. Secondly, these rates are not controlled by processors, therefore fees are non-negotiable and cannot be changed. Additionally, interchange fees are set by the card networks (Visa, Mastercard, American Express, Discover) for processing card payments.
Markup Rates
Markup rates and interchange fees differ greatly. A markup is the difference between the selling price and cost. However, in this case, it is money the processor makes from your transactions. Additionally, the processor will discuss their own rates with you. But, keep in mind that a processor will most likely sell you on the “qualified” rate and not the “non-qualified” rate. This is because the “non-qualified” rate is more expensive. This is also called tiered pricing.
Moreover, the processor will also allege that only certain cards qualify for non-qualified rates. However, the truth is, processors control which cards are considered “non-qualified.” With tiered pricing, different interchange categories are grouped into “tiers,” and a rate is given for that “tier.” Be mindful that tiered rates seem low because processors often quote the tier rate, and not the other fees associated with it.
Furthermore, with interchange plus pricing, the markup is a fixed rate. It is typically a small percentage plus a cents-based fee no matter what type of card it is. Moreover, interchange plus rates can conceivably help you lock down the lowest credit card processing rates.
Let’s say the interchange plus rate is 0.3% + 10 cents. This means you’ll be charged 0.3% of the total transaction amount, plus 10 cents for each transaction. That “rate” is added on top of the interchange rates.
Therefore, the lower your markup, the lower your total pricing will be.
Flat Rates
These rates are self-explanatory. It is just what it sounds like – a fixed rate. This simply means, the rate doesn’t change, no matter what card you take. You will pay the same rate for every transaction.
However, as simple as it sounds, flat rate is not the cheapest credit card processing fee. But it can provide beneficial for businesses with small transactions. If your company operates on a few thousand dollars a month in card transactions, then the flat rate option is best.
Effective Rates
The total amount you pay in processing fees divided by the total amount processed will give you the “effective rate.” Additionally, it is not a rate set by your processor. However, it is the best way to compare your total costs across various price models. Furthermore, the “effective rate” may vary contingent upon the interchange rates.
So, Which Processor Has the Best Rates?
Simply put, it all depends. What we mean by this is that outside factors, like the kind of business it is, or the amount of transactions processed can impact rates. Additionally, the type of cards you accept will also play a role in pricing.
It’s easier to achieve better merchant rates when you understand the little pieces that make it whole. So, now that you know what each rate means, the next time you’re searching around for the lowest merchant costs, also keep in mind the type of business you operate.
