Financially Speaking / Archive RSS Feed
Archive for November, 2008
NYTimes published an interesting article today called Small Business Owners Lobby to Cut Credit Card Fees. We think they did a really good job of explaining how part of the profit goes to interchange and the rest to the processor / merchant acquirer.
A typical merchant card payment has two parts: an “interchange fee,” which includes an average 1.7 percent of the sale price and a flat per-transaction fee, and a separate fee that goes to the merchant’s bank. Take, for example, a driver who pays for a $1,000 car repair with a credit card. The bank that issued the consumer’s card receives an interchange fee of $17.10 (including a 10-cent flat fee), while the repair shop’s bank gets $4, or four-tenths of 1 percent of the total sale. The repair shop pockets $978.90.
The author is assuming that they are using a rewards card or that the card wasn’t swiped. Here is what a the garage would pay in interchange, assuming that the card was swiped and it was a Visa card (the MasterCard rates are very similar):
Debit card: 1.03% + 0.10 = 10.4
Non-rewards credit card: 1.54% + 0.10 = 15.5
Rewards card: 1.65% + 0.10 = 16.6
Business card: 2.20% + 0.10 = 22.1
As for the portion that goes to the acquiring bank or credit card processor, 0.40% is also a low estimate. Most small businesses (like this theoretical auto repair shop) pay a higher markup to their processor.
For example – this article from the Philadelphia Federal Reserve estimates that the average small business pays its merchant acquirer 1.82% on top of interchange. Informed-merchant.com, based on their analysis of First Analysis and Morgan Stanley publications, estimates that a business with $1M in credit card revenue / year pays their processor a markup of about 0.70% with smaller businesses paying much more (average credit card processing rates).
We highly recommend checking out the NYTimes article.
Of course, if you want to see what your business is paying in interchange fees and processing markup, you can use our free credit card processing calculator.
If you have been reading this blog you probably know that credit card processing fees are split between two parties: Visa and Mastercard, whose fees are called interchange and assessments and are mostly passed along to the banks that issue credit cards and the businesses own acquiring bank / credit card processor / merchant acquirer. You also probably have learned that interchange is not negotiable while the markup of the processor is negotiable. But you may not know what businesses like yours pay on average for their credit card processing. Below is an analysis that we got from informed-merchant.com, which they based on analysis from First Annapolis Consulting and Morgan Stanley.
average credit card processing costs
Keep in mind that the above is an average. How large your processor’s markup is largely depends on how good a negotiator you are. If you are a business that accepts credit cards and want to know how much your processor’s markup is, check out our free credit card processing calculator. If you think you are getting a bad deal, put your business up for bid and compare the rates of a dozen high quality credit card processors with our credit card processing comparison shopping tool. You will get rates significantly better than those shown above, we promise.
