The first question I get a lot of times, particularly with new businesses or inbound calls, is “what’s your rate?”. I think a lot of people ask this because they think this is the first question to start the conversation. But even if you are shopping solely on price, it’s still not the right question to ask. Reason being, the question itself makes no sense.

There is no “the rate”; there are many different rates and fees, which add up to a total cost. When a merchant calls in and says “what the rate?”, what they really mean is “what is this going to cost me?”. And that takes a little more digging to provide an accurate answer.

True cost is measured in terms of “effective rate”; that is, the total fee divided by total volume. This is really what the merchant wants to know – for every dollar that comes in, how much of that goes toward processing fees? This can be determined through a statement review, but to the shopper not ready to send a statement, or the new business getting started that doesn’t have processing history, this can make for awkward conversation.

While the question is simple enough, generating an accurate answer is not. For example, even for two merchants on the same price plan, things like the average dollar amount of each transaction, total monthly volume, percentage of keyed vs. swiped sales, volume of debit vs credit vs rewards vs B2B cards, etc generate very different effective rates. I have merchants on the exact same price plan where one pays a total fee of less than 1.5%, and another that pays over 3.5%. Same “rate”, different “effective rate”. If a sales agent can give you “the rate” back without asking you some questions, they are just telling you what you want to hear in order to move the conversation along – buyer beware.

The problem is, when you are really trying to be honest with a merchant and collect the info needed to give them an idea of total cost, often times the merchants get defensive. “Why can’t you just tell me the rate?”. While an agent can tell you the rate, they can’t claim to know the total cost unless they have more info:
Merchant: “Can’t you just tell me the rate?”
Agent: “Interchange plus 25 basis points and $.10”
Merchant: “What’s that mean?”
Agent: “it means we pass through the Visa / MC fees directly, and then our cost is .25% and $.10 per swipe to process the funds”
Merchant: “so what’s that going to cost me in total?”
Agent: “that’s what I’m trying to figure out. I can give you a better idea with just a few questions…”

The truth is, the majority of the fees a merchant pays are direct cost from Visa / MC / Discover / Amex. Typically, on a well priced processing account, the processors fee accounts for 20-30% of what you actually pay. The other 70-80% are the fees Visa / MC / Disc / Amex are applying, which we don’t know unless we do a little digging. So I can accurately state what their fee is, it’s that other 70-80% of the picture that needs more clarification in order to give an idea of total cost.