How to Avoid Misleading Rate Quotes?
How to Calculate Your Effective Rate (%)?
Why merchant’s effective rate (%) keep changing each month?
What’s my % rate? Bad question to ask. (Question that will lead to a scam)
Misleading rate quotes
This one is rampant, particularly among processors who use the tiered pricing model for their fees. In these cases, the payment processor will advertise a low rate — e.g., 1.69% — without fully explaining that the rate only applies “qualified” charges.
Qualified charges are typically purchases made using debit cards and non-reward cards. Purchases made using rewards cards and business credit cards would usually fall into the “mid-qualified” or “non-qualified” categories, which come with higher processing rates.
The payment processor doesn’t advertise those higher rates. Instead, they reel you in using the low qualified rate, then charge higher fees once you start processing with them.
How to avoid misleading rate quotes
The best way to avoid misleading rate quotes is to stay away from payment processors who use Tiered Pricing (i.e.,g those that use qualified, mid-, and non-qualified categories), Flat-Rate Pricing and Subscription Pricing.
You’re much better off going for processors that charge only interchange-plus pricing.
You can also spot misleading quotes by calculating your effective rate
How to calculate an effective rate for credit card processing
The credit card processing effective rate “calculator” is simple:
Effective rate = (total credit card processing fees / total amount processed) * 100
“For example, a $100 fee for $1,000 in sales results in a 10% processing fee,”
Total fees = $100
Amount processed = $1,000
($100/$1,000) *100 = 10%
“If you were charged $800 in fees over a 30-day period in which you also deposited $25,000 into your merchant account, your effective rate would be 3.2%.”
Total fees = $800
Amount processed = $25,000
($800/$25,000) * 100 = 3.2%
If you do this calculation, you might notice it’s different from the figure your processor provided during the sales process. That’s because these are often estimates — not exact figures for processing fees for every transaction. And sales teams almost always tout the more attractive rate.
Let’s look at how this applies to a real merchant, using their statement below.
Total fees = $1,506.68
Amount processed = $51,634.88
($1,506.68/$51,634.88) * 100 = 2.917%
So, this merchant’s effective rate is about 2.92%.
Grab your merchant statement and go through this exercise to calculate the credit card processing effective rate for your own business.
The day-to-day range can change based upon many factors, such as how the transaction is processed, the industry you are in, and the kind of credit card presented. The cost of flat fees and incidental fees ultimately depends on your credit card processor. Some processors might charge more fees than others. Some have no monthly statement fee at all, while others can be as high as $20 a month. You may be charged a fee for a chargeback, and that fee will impact your total effective rate for that particular month.
What’s my % rate? Bad question to ask.
Asking your Percentage Rate to a payment processor is not the best move. This question will lead to scam. You are showing them that you only have insufficient awareness about how the fees works, and it gives them an opportunity to trick you.
Instead of asking how much percentage they will charge, ask them about Markup Fee, Discount Rate, Authorization Fee and other junk fees they will be charging.
Need help figuring out your rates?
If you’re having trouble identifying the information we’ve outlined above, feel free to send us your merchant statement and our payment consultants will analyze it for you.
Get in touch with the Swipe Card 247 team — we’re happy to assist you.