There have been a number of times where I have been pulled aside at a party or a cookout and somebody has asked me about credit card processing because they know I have worked for American Express and Worldpay, among other organizations.
They’ll ask, “Do I have a good rate?” Whenever that happens, I’ll reply, “There is rate and then there is total cost. Which would you like to talk about?” After I see the quizzical look on the faces, it gives me a chance to give a quick tutorial on how credit card acquirers structure their fees.
I will often tell them that “rate” represents 40-50% of their overall program cost and they should focus their attention on the big number. To determine their program costs, simply divide fees into their volume—because that is the number that matters.
Looking through a credit card merchant statement is like reading a mystery novel because the really interesting stuff is found on the last page. When they tell me about the great rate they got from their provider, I’ll ask them to email me a copy of their latest statement and we can discover what is real and what is fluff.
What does that look like?
The first rule is this: If a merchant statement lacks transparency and it is difficult to understand, it should be an immediate red flag. You should be able to easily identify “interchange fees” and “processor fees.” Interchange represents the wholesale cost of credit card fees and regardless if you are small flower shop or Amazon, everybody plays from the same sheet of music.
Since merchant processing interchange fees were unbundled roughly 20 years ago, every card product has its own interchange table that determines how the transaction is priced.
- Is it card present or not?
- What type of card is being used?
- Is it a personal or business card?
- Is the card foreign or domestic?
- What type of establishment is this?
- Is it small or ticket item?
- And many, many more.
Like I said earlier, credit card merchant statements are like mystery novels because rather the last page is often the most interesting. There is a variety of fees, some are tied to interchange, others are not. Some “back page” ledger items that are listed as “interchange surcharges” but may have nothing to do with interchange. Because the industry has “trained” merchants (big and small) to focus on the rate, other parts of the statement are often ignored, often at their own peril.
Interchange rates are listed online and are easily found within a few clicks. Once you have the spreadsheet, you can begin to get a better handle on your overall merchant processing fees.
Once you understand the difference between “rate” and “cost,” then you can dive into a better understanding of what you pay each month. At the end of the day, merchants need to how their statements are constructed because it’s their money on the line.
Besides, as much as might like it, I cannot be at every backyard picnic or birthday party.
Payments, Fraud, and Leadership 