One of the main ways that you can negotiate a good deal for yourself is to know what others are being charged.  Unfortunately, most merchant account providers are not very transparent in their pricing, we have done some research to shed some light into the murkiness.


What is the industry average price?

The analysts at Morgan Stanley who research the stocks of the publicly traded merchant account providers, estimate that the average Visa / Mastercard credit card fee is 2.15% .  For most merchants Visa / Mastercard make up the majority of transactions.

However, keep in mind that the industry average is skewed downwards by large retailers like Walmart and Circuit City that are able to negotiate very low rates for themselves.   Heartland Payment Systems, a processor that specializes in smaller merchants, reported an average of 2.53% in Heartland’s annual report.


What factors influence the price that I am charged?

There are two parts of the credit card rate, interchange and the merchant account markup.  Interchange is the amount that gets paid to Visa and Mastercard.  The processor markup goes to your processor to cover their costs and profit.

Factors that influence Interchange:

  1. What kinds of transactions you accept – for example, the rate is lower if the card is swiped through a magnetic strip card reader than if the number is keyed in by hand and the rate for internet transactions is somewhere in between.
  2. What kinds of credit cards your customers use – for example, a rewards credit card costs you, the merchant, more than a standard credit card and a debit card linked to a bank account costs less.  Another example – a debit card transaction where the pin is typed in costs less than a debit card transaction where the pin is not typed in.

Factors that influence the merchant account markup:

  1. The amount of time you have been in business
  2. Your credit rating (because of chargeback risk)
  3. The volume of business that you will do – bigger companies get better rates
  4. How informed and diligent a negotiator you are


Teaser Rates

It is very common in this industry for merchant account providers to advertise teaser rates.  Some issues you should watch for:

  1. The rate may change
  2. The advertised rate is the “Qualified” rate or the “Debit” rate and probably won’t include most of your transactions.  The real rate that you will pay for many transactions, including all rewards and corporate cards is hidden under the “Mid-Qualified” rate.
  3. Frequently merchant account providers will provide a low % rate but then jack up the
  4. Sometimes they will advertise their rate net of Interchange, if that is the case add about 1.75% to the rate to get a rough estimate of the actual cost

Always carefully read your statement, it takes a few minutes but can save you a lot of money.


What is a typical merchant account rate?

Since every merchant account has different fees, transaction tiers, etc. the only way to compare them on an apples-to-apples basis is to add up all the fees for a month and divide it into the total volume for a month.  Below we have done that comparison in 2 ways.  The top graphic shows the amount the merchants are charged above the Interchange Rate and the below graphic shows the total charges.

While Interchange is not customarily discounted, small merchants pay significantly higher markups than large merchants.  That is because they have less bargaining power, spend less time shopping for a good rate, and are more expensive to serve.  Many of the merchant account companies make a conscious effort to target smaller merchants because they can charge higher rates and are more profitable.


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