Do you ever wonder if you are overpaying? Why is your friend with a similar business paying less? Should you take the offer for a lower rate from a new service provider?
Here is a simple rate estimator. First, a disclaimer: it is only an estimator. Lots of simplifications are used.
Second, you would want to understand what you are paying for. In the simplest terms, the total fees consist of the interchange fees, paid to the credit card companies, like Visa, Mastercard, or American Express, and the markups, paid to your service provider. The interchange fees are determined by the credit card companies. Each transaction has a fixed interchange fee. The markups vary with different service providers.
The interchange fees are affected by: 1. total volume of card payments, 2. average ticket size, 3. types of cards your customers use, and 4. type of your business. Each card type has a different interchange fee. Sometimes, the same card type has different interchange fees for different business types. To make estimates, we simplify: we group card types into debit, credit excluding American Express, and American Express. We also consider only two types of businesses: retails including salons, and restaurants.
We cannot estimate the markups your service provider is charging you, obviously. So we use a rather low, but reasonable, formula for approximating the markups. If your service provider's markups seem higher than what the estimator gives you, factor in the quality of the services and all the "free stuff" that you are getting from your service provider. A high price does not necessarily mean a bad price.
So, go ahead, select your business type, enter the average ticket size, the debit volume, the credit volume (excluding American Express), the American Express volume, and click the button "ESTIMATE".
The estimator gives you an estimate of the interchange fees and the total fees. The effective rate is the total fees divided by the total volume.
If the estimated numbers are in the same ballpark as the numbers on your statements, but you are still wondering why you are paying more than your friend, consider what affect your interchange fees:
• Restaurants have higher interchange fees than salons
• Smaller average ticket size means higher interchange fees
• Lower volume means higher interchange fees
• Credit payments have higher interchange fees than debit payments
• American Express has higher interchange fees than other credit payments
If the estimated numbers are much lower than what you are currently paying, maybe the estimator is plainly wrong. If you are still wondering, send us a few of your statements. We may be able to give you better estimates than our estimator.