Understanding Advertised Processing Rates!

(Why total processing cost is (usually) not equal to the percentage you’re promised.)

Short answer: Because there’s much more that goes into your total price than a rate.  If you ask for a rate, you’ll get a rate, sure.  But that’s like asking a car dealership how much an engine costs and expecting to walk out with a whole car after paying.  Unfortunately, the rate can be deceptively small or completely made up.  How often do you see stuff like this?

It sounds fantastic, and it would be if it were possible 100% of the time without National Bank Card, salesmen that they are, losing money on processing costs.  The reality is it ain’t.

Long answer: Your total costs are comprised of much more than a single percentage—unless you’re using a flat rate pricing program, but we can get into that later.  Unfortunately for you, single percentages sell a lot better than a block of fine print, and, with those nifty contracts that MSPs dole out like candy, it’s pretty easy for them to get away with promising you something lovely and sweet and then delivering something slightly sour. 

Single advertised percentages can mean a few different things, but hardly ever the full price.  A single percentage can refer to:

• The interchange (base) cost to accept a credit card.  It’s not likely a processor would come out and tell you this, not only because interchange isn’t in everyone’s vocabulary (“You mean the freeway junction?”) so it’s easier to avoid talking about it, but because interchange costs fluctuate rapidly depending on what credit cards your customers use.  For a full breakdown, you can click here.  Let’s just say it doesn’t read like The Catcher in the Rye, though.  (Brief synopsis: Consumer credit cards and debit cards aren’t so expensive.  Business-type credit cards and government purchasing cards are.)

• The total cost to accept credit cards.  This is more likely what a processor wants to convey when advertising “Card Processing under 1%.”  However, as we can see by skimming over that Interchange Guide above, even interchange costs are rarely below 1%.  So, do we really expect National Bank Card (or any other processor, for that matter) to eat cost on your transactions?  Good heavens, no.  We’ll see some companies like Sage Payment Solutions advertising 1.85% on “qualified” transaction costs, too.  While 1.85% is a tad more realistic than <1%, it still doesn’t account for a big number of card types in that interchange guide—anything over 1.85%.  What happens if you don’t get that 1.85%?  SPS can just say your transactions didn’t qualify.  Better luck next time!  Here is the picture as it appeared December 1^st, 2014:

(FYI, the folks at QuickBooks Payments love to do this too.  Remember, though: hate the game, not the player.  Both Sage Payment Solutions and Intuit Merchant Services are using a pricing formula that's been tried and proven over years: the fewer numbers you show someone, the better off everyone is.)

• The markup on your transactions.  This is usually what a given processor is trying to convey with an ad like that of our friends at National Bank Card, much as they may not want you to realize that.  A markup of 1% on top of an interchange cost is no small chunk of change, especially as your processing volume rises.  (That’s why it’s more common for smaller companies to have higher markups and larger companies to have smaller ones.  Somewhere down the line, someone realized that 1% of $3 million per month was $30,000 and that their company was helping to finance someone’s country house and yacht every month.)  “Under 1%” is of course better than 1%, but how much better?  We can’t tell, of course.  As long as they keep you below a 1% markup, though, they’ve kept their promise.  Get ready for a nice 0.95%!

A note on flat rate pricing

The only situation where I would trust a processor reading me one number over the phone or on the internet would be after they've thoroughly analyzed the trends for credit card usage among my customers--that is, they'd have to tell me what kinds of card types are coming in and how they arrived at that single cost.  For example, if I'm in the B2B realm, accepting a good number of corporate cards every month, it wouldn't be out of the question for someone to quote me a flat rate of 3%.  It's a little high, yes, but it covers the real expenses of the credit cards I accept.  You'll never see those kinda of quotes advertised on "credit card processing" Googles, though, because everyone's already advertising <1%.

Back to business...

Those are your options when you see ads like the one I mentioned.  They’re everywhere, and you’ll get a rotation of them whenever you Google “credit card processing.”  And, going back to the short answer, the reason they’re so popular is they’re a lot easier to read and process than a mass of fine print  And, since this explanation wasn’t written in size 6 font, I hope it helped you a little more than a big ol’ text block would have.

Cheers,

Jeremy