Interpreting your credit card processor’s statement can feel like translating a foreign language with all the various fees and their different names. It can be frustrating as a business owner to read through them, especially since different transactions might be subject to different fees.
This fee structure is often referred to as “Interchange Plus” (well explain this structure in more detail later). The ‘plus’ comes from the fact that your rate is a combination of interchange fees, assessment fees, and then your own payment processor’s fee, typically called a markup. Depending on how your contract is set up, the rate may vary based on how the card is used — swiped, keyed in, or online — and even by credit card brand, i.e. Visa vs. American Express, or type (credit or debit).
The complexity of this system has pushed some credit card processors to turn to another system to simplify its customers’ bills. Called “blended” or “flat” rating, all that matters is how the card is used – so there’s typically only two or three rates, a swiped, keyed in, and online rate if applicable.
Processors look at it another way: fee questions are among the most common customer service issues that they deal with daily. By simplifying their rates, these calls decrease substantially in most cases. The simplification of their rates has an even more substantial effect on their bottom line: by smoothing out their rate structure, a credit card processor may make more per transaction since the rates provided to the customer are subject to fewer factors.
It’s for that reason you should think twice about selecting a credit card processor that promises “simple fees,” because what you’re gaining in a streamlined bill you’re certainly losing in sometimes significant overcharges. The only reason some of these credit card processors get away with it is because of their size.
The ‘Durbin Amendment’ to the Dodd-Frank Financial Reform Act capped debit card rates at 0.05% of the transaction total plus 22 cents for sales greater than $10, and 1.60% plus 5 cents for those under $10 (PIN transactions also have a cap, set at 0.80% plus 18.5 cents). But it doesn’t protect everyone: banks with under $10 billion in assets have greater freedom to set rates to their liking.
As a result, most of us pay more to our credit card processors since many credit card providers don’t meet that high standard. And others just lump their “costs” into that rate by using a blended fee structure.
Square does just that. Here’s their structure: 2.75% per swipe, dip, or tap, 3.5% + 15 cents for each keyed-in transaction, and 2.9% + 30 cents for each online transaction. That’s significantly higher than the regulated fees (and even most unregulated fees), but it’s hidden behind the ‘benefit’ that “there are no monthly or hidden fees, and PCI compliance and Chargeback Protection are included in the rate.”
That should sound a bit like snake oil to you because it is. Insist on ‘interchange plus’ when you’re looking for a credit card processor. You’ll keep more of your hard-earned money. While they do charge a slight markup to cover their costs for software and servicing, it’s nowhere near what you’ll find elsewhere.
Yes, it is more complex, but our partners will be happy to explain how they bill to you and make sure you understand it. And don’t worry, they have the customer service team ready and willing to handle those requests, rather than overcharge you in the name of simplicity.
