The macro perspective on the costs of accepting card payments
Interchange is the largest component of your merchant discount rate pricing. And Interchange rates and fees vary widely by industry. For this reason you should ensure your merchant account category code (MCC) is properly coded. In addition to differences in rates and fees, there are also different regulations that can impact your bottom line such as authorization and chargeback rules.
Card Types Accepted
The mix of customers and the types of cards they present for payment will cause differences in your Real Rate. We are not just talking about the different card brands like MasterCard, Visa and Discover but the different card types issued under these brands like – credit cards, debit cards, prepaid cards, rewards cards, corporate cards, purchasing cards and international card products.
Most providers charge “Non-Qualified” surcharges for rewards and business card transactions, increasing your Real Rate from the “rate as low as” quote you received. This is even more important as the card-brand’s published Interchange charts become even more complex. For example, most check card transactions are now regulated by the Fed which can have a major impact depending on your industry.
Method of Acceptance
How you accept the card payment is a major factor impacting your bottom line costs of card acceptance. And it’s not just the difference between “swiped” and “keyed” transactions anymore. For example, there is a right-way and a wrong-way to key-enter transactions. Following best practices can qualify transactions for lower Interchange rates.
Transaction Size Matters
Interchange rates and fees are set at the transaction level. And so is the network cost of authorizing and settling each transaction where the fixed costs of moving data across the network is the same for $1 as it is for $1,000. Therefore, when comparing your Real Rate with other businesses, your average transaction size is an important metric. For example, a $0.10 transaction fee as a percent of a $10 sale calculates to 1% ($0.10 / $10); whereas a $0.10 transaction fee as a percent of a $100 sale calculates to only 0.10% (10 basis points).
While card Interchange is set at the transaction level, many of the “other fees” for having a merchant account are billed on a monthly basis. Therefore, when benchmarking your Real Rate with other businesses, it is important to look at those with similar sales volume. For example, a $10 monthly statement fee as a percent of $3,000 in monthly sales calculates to 0.33% ($10 / $3,000 = 33 basis points); whereas this same $10 statement fee as percentage on $30,000 a month in sales equals only 0.03% (3 basis points).
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