How to work out what you actually pay to take a card

The arithmetic, which is the whole trick

There is one calculation and it takes about five minutes. Total fees for the month, divided by total card volume for the month. Multiply by 100 for a percentage. That is your effective rate, and it is the only number worth comparing between providers.

It matters because a merchant statement is not designed to show you this. It shows a headline rate, then charges you through six or seven other lines, none of which appear in the number you were sold. An operator quoted 1.79 percent can easily be paying close to 3.

What every line on the statement actually is

Statements use different names for the same things, so match on function rather than on the label. Roughly in order of size:

Interchange

Paid to the bank that issued your customer's card. Set by Visa, Mastercard and the rest, published openly, and identical for every provider. This is the floor. Nobody can discount it, and anyone claiming to is describing something else.

Assessments, or network fees

Paid to the card network itself. Also fixed, also the same everywhere. Small relative to interchange.

Discount rate

The percentage line, and usually the biggest single number. Depending on your pricing model this may bundle interchange inside it, which is what makes tiered pricing hard to compare.

Per-item or authorisation fee

A few cents per transaction. Looks trivial and is not: on a high count of small tickets it can outweigh the percentage entirely.

Monthly service, statement, and minimum fees

Flat charges that exist regardless of volume. A monthly minimum means you pay a floor even in a quiet month.

PCI fee, and PCI non-compliance fee

The first is for the compliance programme. The second is a penalty for not completing an annual self-assessment questionnaire, and it is frequently charged to businesses that could stop it in an afternoon.

Batch, gateway, and terminal fees

Charged for settling the day's transactions and for the hardware or software moving them. Often bundled, often negotiable.

Chargeback and retrieval fees

Per-dispute charges. Worth watching separately, because they signal a different problem than pricing.

The three pricing models, and why only one is comparable

You are on one of three structures, and knowing which changes what you should ask for.

How to tell whether yours is high

There is no single fair benchmark, because your card mix decides most of it. Rewards cards and business cards carry higher interchange than a basic debit card, so a business serving affluent homeowners pays more than a corner shop for reasons nobody controls. Keyed and card-not-present transactions cost more than tapped ones.

What you can do is compare like for like. Work out your effective rate for three consecutive months so a seasonal mix does not mislead you. Then ask a second provider to quote interchange plus a fixed markup on the same volume and card mix. The difference between the markups is the part that is actually negotiable, and it is the only part worth arguing about.

If your effective rate is drifting upward while your business has not changed, that is worth a look on its own. Rate increases are usually notified in small print on a statement and take effect quietly.

Things worth checking before you switch anything

• PCI non-compliance fee. Complete the questionnaire and it stops. That is often the fastest saving available and it costs nothing.
• Early termination fee in your current agreement. It changes the maths on switching, and it is the thing people discover after deciding.
• Terminal lease. Leases are frequently separate from the processing agreement, run longer, and are harder to exit than the processing itself.
• A free terminal offer. The hardware is rarely the expensive part. Check what the rate is with and without it.
• Whether your point of sale or booking software is tied to one processor. Some are, and that limits your options regardless of price.

What switching actually involves

Less than people expect, and this is the part that stops most operators who would otherwise save money. New gateway credentials or a new terminal, a test transaction, then you carry on. Deposits usually land on the same schedule. The work is an afternoon, most of it waiting.

The honest reason to be cautious is not disruption, it is that a saving of a few tenths of a percent on modest volume may not be worth the paperwork. Do the arithmetic first. If the annual difference does not clear a few hundred dollars, leave it alone and spend the attention somewhere with more leverage.