In Part 1 we discussed what processing rates are and the different types of pricing platforms. We ended with the definition for the infamous “Interchange rate”.

In this Part 2 we will look at the impact of Interchange as well as how to determine your “cost effective rate” or your “monthly net rate” and what all that means. Here goes!

Most pricing discussions hinge on one category of cost: Interchange. This is largely due to the fact that it is the one fee that makes up the majority of your processing costs. Card association fees make up a large portion of the cost but not nearly as much as the Interchange rate.

Each card and transaction type has a specific interchange fee set by the corresponding card association. That fee is collected by the card issuing bank. You can visit the websites for Visa and Mastercard for a full list of interchange rates. For Discover and AMEX, you have to have permission to get theirs. The interchange rate is not negotiable and is normally charged at wholesale or as the published rate on the interchange tables.

Interchange rates are set based on the type of transaction (face to face or keyed in) and the type of card used (high rewards vs low rewards or corporate vs govt, etc).

For example:

Basic Credit Card: swiped/dipped: 1.51% + .10 keyed: 1.80% +.10
Traditional Rewards: swiped/dipped: 1.65% +.10 keyed: 1.95%+.10
Preferred Rewards: swiped/dipped: 2.10%+.10 keyed: 2.40% +.10

There are several other fees that go along with processing your credit cards. The list is long. Some will be charged by your merchant services company and some will not. Here is a list of the most frequently charged:

  • Early termination fee
  • Card assessment fee
  • Fixed Acquirer network fee (FANF)
  • MC location fee or Merchant location fee
  • Pin Debit network fee
  • Monthly fee and/or Annual fee
  • Statement fee
  • POS Software fee
  • Payment Gateway fee (also known as hosting fee)
  • PCI Compliance fee
  • IRS reporting fee
  • On-file fee
  • Batch fees
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This brings me to your Cost Effective Rate or Monthly Net Rate and why you need to understand this and how to calculate it.

Because there are so many moving parts to your overall processing, making it impossible for you to keep up with, the CER or MNR is the best and most reliable way for you to make sure where you are with your processing costs. This is because this monthly net rate is a TOTAL of all of those moving parts. Each month when you get your statement you should figure out what the percentage is. The math looks like this:

Cost of processing divided by your total monthly volume equals the monthly net percentage rate.
$100 (cost) divided by $1000 (volume)= .1000% (move the decimal to the right 2 spaces) and you get a monthly net rate of 10%.

For face to face businesses, a monthly net rate of more than 2.5% is usually too high unless the volume is very low. As a rule – the higher the volume the lower the percentage.

E-commerce businesses will always have higher monthly net rates because all of their transactions are keyed in which – as we have learned – have a higher interchange rate.

In Part 1, I indicated that we would talk about what a “processor” is.

The brief description is this: processors are also known as “Acquiring Banks or Acquirers”. These institutions act as messenger between merchants and credit card associations. They pass batch information and authorization requests along so that merchants can complete transactions in their businesses.

Your “Merchant Account Provider” is almost always called “my processor” but in actuality we are “merchant account or services providers” setting up your account for you so that the transaction goes through all of the steps to get you paid when accepting a credit card payment.

I hope this has helped. I know that it is confusing and confounding. But if you have some knowledge of the basics, I believe you are in a better place to make good decisions!

If you would like to get in touch with the author, please contact:

Barbara Ewell
Retriever Merchant Solutions