What card processing actually costs you

Start with a $100 sale

A customer taps a card for $100. Somewhere between two and four dollars of that never reaches your bank account. Most owners know this roughly. Almost nobody knows where it goes, and that gap is worth real money to the people selling you processing.

Three parties take a cut, and only one is negotiable

The bank that issued the card takes the largest share by far. This is called interchange. It is set by Visa, Mastercard, Discover and Amex, it is published openly, and it is identical no matter which processor you use. A rewards card costs more than a plain one, because somebody has to pay for the points.

The card network takes a small percentage plus a few cents per transaction. Also fixed, also identical everywhere.

Your processor takes whatever is left. This is the only part anyone is actually competing on, and it is usually a small fraction of what you pay.

Which means: if a rep tells you they can cut your rate in half, either your current markup is enormous, or they are not telling you the truth about what happens in month seven.

Then there is everything else

The percentage is not the whole bill. Look for these on your statement:

• Monthly statement fee: for sending you a bill
• PCI fee, and worse, a PCI non-compliance fee, often $25 to $50 a month, triggered when paperwork nobody reminded you about lapses
• Annual fee: shows up once a year, usually in month thirteen
• Batch fee. A small charge each time you close out the day
• Gateway or terminal fee: sometimes legitimate, sometimes for a gateway you do not have
• Equipment lease. The worst of them. Non-cancellable, often four years, on a terminal worth a few hundred dollars

On a small merchant, these fixed fees can be a larger share of the total than the rate everybody is arguing about.

The one number worth calculating

That percentage is what processing actually costs you. It is the only figure that lets you compare two proposals honestly, and it is precisely the figure that tiered pricing and bundled quotes are designed to obscure.

Most small businesses land somewhere between 2.5% and 4%. If you are above 3.5%, there is usually something specific and fixable going on, often a lease, a tiered plan, or fixed fees that are large relative to your volume.

Why "we'll beat your rate" is a weak promise

Because rate is one variable and the bill has six. A processor can genuinely beat your rate and still cost you more once a lease, a gateway fee and an annual fee are stacked on top. Compare effective rates or do not compare at all.

What to do with this

Pull last month's statement. Find the total fees. Divide by volume. Now you know your number, and you know more than most people who will call you about it this year.

If you want a second pair of eyes, send it to us. We read every line and tell you what is avoidable, including when the honest answer is that you are already in decent shape.

Or see what a year of it looks like →