Where the cost of a card payment comes from
Every card payment carries three kinds of cost:
- Interchange: paid to the bank that issued your customer's card. Interchange rates are set by the card networks and vary by card type (for example debit, rewards or business cards) and by how the card was accepted (in person or keyed in, for example).
- Network fees (often called assessments): charged by the card networks themselves.
- Processor markup: what your processor charges for its service. This is the part that differs between providers.
Interchange and network fees are broadly the same whichever processor you use. Pricing models differ in how they pass those costs on, and how visible the markup is.
Interchange-plus
You pay the actual interchange and network fees for each transaction, plus a stated markup, usually a percentage and/or a small amount per transaction. Because the markup is separate, it is the easiest model to compare and to check.
Flat rate
One rate for most card payments, sometimes with a per-transaction fee. It is simple to understand. The trade-off is that you pay the same rate on low-cost debit cards as on expensive rewards cards, so the markup is hidden inside the average.
Tiered
Transactions are sorted into tiers, often called qualified, mid-qualified and non-qualified, each with its own rate. The processor decides which transactions fall into which tier, so the true cost can be hard to see from the statement.
Cash discount and surcharging
Some businesses pass part of the cost of card acceptance to customers. Under a cash discount programme, posted prices include the cost of card acceptance and customers paying cash receive a discount. Surcharging adds a fee to card payments. Both are governed by card network rules and, in some states, by law, including disclosure requirements and limits. They suit some businesses and not others.
What to look for in an offer
- Is the markup stated separately from interchange?
- What fixed monthly fees apply, and what is each for?
- What does the agreement say about term and early termination?
- How will you be told about future fee changes?