iGeneration Banking Solutions

What is your real rate to take credit cards?

     When shopping for credit card processors, most salespeople will tell you something like this: “it’s 1.99 and 25 for Visa and Mastercard, 2.5 and 25 for American Express.”  In layman’s terms, this translates to 1.99% plus 25 cents per transaction and 2.5% for Amex.  That sounds really good.  Why is your current rate so much higher?  It certainly sounds like you’ve been paying too much in credit card fees.

     But that’s not your REAL rate.  At least,
not most of the timeThe first and most common factor that influences this rate is that most customers will pay with some sort of rewards card.  Some examples include Citi Double Cash (which offers their cardholders 2% back), Chase Freedom and Capital One Venture.  All of these cards offer heavy rewards or incentives “back” to their customers.  You help pay for that.  Most of the time, these cards are processed at a higher rate.    Then there’s the interchange fee category.  MasterCard has more than 240 different categories.  This means a merchant that sells ice cream will have a different rate than a gas station.

     Well then, how do you figure out your REAL rate?  The simplest method is to take all of your card transactions of the same type (ie. all Visa cards) and 
divide the total of all fees by the total dollar amount processed.  This will give you the actual rate you’re paying to take Visa.  It’s technically an average, but closer to reality than what you were quoted by your merchant processor.

Is it really more expensive to take American Express?
American Express cards are ALWAYS charged the same rate.  All of them.  Every time.  Yes, they are a slightly higher rate. The key word being slightly.  When you consider the previous factors, the gap is not as large as you think.

Is there any way to get a lower rate on Amex?
American Express intentionally prices their card rate at the top. One reason is because they know their customers are more valuable.  Not everyone can get an American Express card, but almost anyone can get some sort of Visa card.  Especially when you consider all the debit cards branded with MasterCard and Visa.  If you refuse to take American Express, you are pissing off the elite group - you know, the ones with money that can actually afford to come back.  This may not be a factor for your business.  For example, if you sell water in the desert and you’re the only store in a 500 mile radius.  If, on the other hand you sell something that has a higher level of competition, keep in mind that your customers have options.  You may get them to pull out a different card THIS TIME, but there’s a pretty good chance they’ll remember that you don’t accept American Express when they think about coming back.  That said, the good news is that American Express started offering interchange rates late in 2014, so there is SOME margin for negotiation.  Just remember to factor in the “value” of the Amex cardholder when considering your merchant processing option.

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