What is a good effective rate for credit card processing?

Regardless of size, merchants always look for the most competitive credit card processing rates available. This only makes sense: Rates that are unnecessarily high eat into profit margins and may put your business at a severe competitive disadvantage, hampering your ability to increase sales and the number of new customers.

What is considered a good effective rate depends on the merchant’s situation. No single flat rate is available to all merchants. Before getting into the variables that affect your rate, let’s take a look at the normal range of processing rates to give you a frame of reference. The rates below are averages of the most significant components of the effective rate, interchange fees and assessment fees charged by the issuing bank and credit card network respectively.

  • Mastercard — 1.55% to 2.6%
  • Visa — 1.43% to 2.4%
  • Discover — 1.56% to 2.3% (card issuer and network)
  • American Express — 2.5% to 3.5% (card issuer and network)

These rates fall into a range because the exact charge depends on the merchant’s merchant category code (MCC), whether a debit or credit card is used and the processing method. For instance, card-not-present (CNP) transactions are riskier than in-store, card-swiping transactions and thus carry a higher fee to cover the higher risk. There is not much room for negotiation with interchange and assessment fees, since they are applied uniformly across the U.S. to all merchants. You do, however, have some control over your rates by, for instance, accepting certain cards versus others, improving the creditworthiness of your business, upgrading your processing technology to improve data security and encouraging certain types of card payments over others. Bit by bit, actions like these will reduce your effective overall card processing rate.

Merchants with a high risk MCC can expect higher rates than what applies to medium- and low-risk merchants. A merchant is considered high risk if it operates in a high risk industry, if the business has poor creditworthiness, if it sells online, etc. Performance Card Service (PCS) specializes in high risk merchant accounts. We have longstanding relationships with industry-leading banks and processors that actively seek to do business with merchants in the high risk category.

Processing fees are separate charges that are assessed by the processor or merchant account provider handling your credit card transactions. These fees comprise a smaller percentage of the effective rate, are negotiable and are structured in different ways. Processors may charge a flat rate for all transactions, have variable fees for different types of transactions, or combine a flat monthly fee and a transaction charge. In addition, processors may charge additional fees for terminal leasing, service, cancellations and many other things. We help clients review offers to make sure all fees are clear, and also guide you through the negotiation process to explore ways to reduce or eliminate fees that can add up quickly and hamstring your business.

If you are confused about how to calculate your effective rate or are looking for new options to obtain a more affordable payment processing solution, please contact PCS. We are happy to review your situation and explore alternatives that offer more competitive rates without sacrificing security or efficiency.

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