Notes
What card processing actually costs a shop.
The quoted rate and the rate you pay are different numbers. The second one is on a statement you already have, and it takes about ten minutes to find.
Every shop has been quoted a processing rate. Almost none of them pay it. The quote is a headline number attached to one category of card, and the statement is the arithmetic of every card that actually came through the door, which is a different thing.
This is not an argument for switching processors. It is an argument for knowing the number, because a shop that does not know its effective rate cannot tell whether an offer to lower it is worth anything.
The only number that matters
Take one full month. Add up every fee the processor charged: the per-transaction percentages, the fixed cents, the monthly account fee, the statement fee, the gateway fee, PCI fees, batch fees, and anything labelled as an adjustment. Divide that total by the total card volume for the same month.
That is your effective rate. It is the only figure that can be compared against anything, and it is usually a good deal higher than the rate anybody quoted you.
Why it is higher
- Interchange is not one number. It is a large table set by the card networks, and the category a transaction falls into depends on the card and how it was taken. A rewards credit card costs more than a debit card. A business or corporate card costs more again.
- Card-not-present costs more than card-present. A card typed in over the phone, which is normal in a shop, is priced above the same card tapped at the counter.
- Fixed per-transaction fees hit small tickets hardest. Ten cents on a 900 dollar repair is nothing. Ten cents on a 12 dollar item is not.
- Monthly fixed fees are invisible in a rate quote and very visible in the effective rate, especially in a slow month.
The two shapes of pricing
| Flat rate | Interchange plus | |
|---|---|---|
| What you see | One percentage, sometimes two | Interchange, network assessment and the processor margin, itemised |
| Simplicity | High. One number, predictable | Lower. The statement is longer and has to be read |
| Where it wins | Lower volume, small tickets, wanting one predictable number | Higher volume, larger tickets, willing to read a statement |
| The catch | The bundle hides the margin, and the margin does not fall as you grow | A low quoted margin can sit next to fees that are not in the quote |
Neither is a trick. Flat rate genuinely is simpler and for a low-volume business it is often the right answer. The failure is comparing a flat rate against an interchange-plus margin as though they were the same number, which is exactly how the second one gets sold.
What actually moves the number
- Taking more cards card-present. Every card typed in by hand is priced higher and carries the dispute risk as well. A shop that takes deposits over the phone is paying for both.
- Getting the extra data right on keyed transactions. Passing the billing postcode and address on a card-not-present transaction can qualify it for a better category, and a lot of systems simply do not send it.
- Batching daily. Late settlement can downgrade a transaction to a worse category. This is usually a setting nobody has looked at.
- Removing fees that buy nothing. Gateway fees for a gateway you no longer use, PCI non-compliance fees that exist because a questionnaire was never filled in, terminal rental on a terminal you own.
On passing the fee to the customer
Surcharging is possible in many places and it is more constrained than it is usually presented. The card networks treat a surcharge on credit as a distinct thing from a discount for cash, they cap what you may add, they require the amount to be disclosed before the customer commits, they require you to notify the network in advance, and they treat debit differently again. State law also bears on it and has changed in several states in recent years.
So the honest answer is that it depends on where you are and what your own agreement says. Confirm the current position with your processor, and where the money is material, with your own advisor. Anyone who tells you it is simply free money is not the person to take it from.
What to do with the number once you have it
Write it down, with the month it came from. When the next processing offer arrives, and one will, you can answer it in a sentence instead of a meeting. Most offers compare their quoted rate against your quoted rate, and both are fiction. Your effective rate against their effective rate on the same month of your real volume is the only comparison that means anything.
Questions
What is a good effective rate for a repair shop?
There is no single answer, because it depends on ticket size, the card mix your customers actually carry, and how much is keyed rather than taken at the counter. That is why the useful exercise is measuring your own rate rather than benchmarking against a figure from the internet. Once you know it, you can tell whether a quote is an improvement. Without it you cannot.
Is interchange plus always cheaper than flat rate?
No. It is more transparent, which is not the same thing. At lower volumes the fixed monthly fees that often accompany it can make the effective rate higher than a flat rate with no monthly cost. Work it out on your own volume rather than on the principle.
Why did my rate go up when I did not change anything?
Usually the card mix changed rather than the rate. More rewards cards, more business cards, or more transactions keyed instead of taken at the counter will all raise the effective rate with no change to your agreement. Interchange tables are also revised by the card networks, typically twice a year.
Do I have to use the processor my shop software recommends?
Usually not, though the integration may be easier and that has real value. The question worth asking is what happens to your payment history and stored cards if you leave, because that is the part that makes a processor genuinely difficult to change later.