Do you find the cost associated with credit card processing confusing? A lot of folks do. Stay tuned because I’m going to tell you not just how much it costs, but how much you should actually be paying for your payment processing. Because how much it costs generally, and how much you should actually be willing to pay, are two very different things.
The processor needs to make money
Let’s start by talking about the thing you don’t want to talk about. The payment gateway processor has to earn some money. If they don’t earn some money they won’t answer the phone, they won’t process your transactions. So it’s really about what’s a reasonable amount of money for a payment processor to make from your processing? This is not an abstract concept. I’m going to be very specific. If you have, let’s say, Sony or Netflix, a huge company that does millions of dollars in transactions per month. The payment processor has to have a very small markup for transactions because they do so many transactions that even with the low margin they make enough money to service the account. Now you could take a local fish and chip shop on the street corner. They might have the best fish and chips in town but if they are only processing $5 to $10k per month in credit card sales, the payment processor has to earn more margin per transaction in order to service the account. We’ll get into how much is reasonable and I’ll give you enough knowledge to figure it out for your business in a moment.
Interchange is cost from Visa and Mastercard to the payment processor. It’s set on a country basis so if you have a Canadian business it will fall under Canadian interchange. An American business will fall under American interchange and so on and so-forth. There’s a lot of material on the Merchant-Accounts.ca website about merchant account interchange and exactly what it is. I’m not going to talk about that in this video. I’m just going to generalize. There are basic cards that cost about 1.5%. That’s the true cost from Visa/MC to the payment processor on an ecommerce transaction. A rewards card costs about 1.8%. A corporate card usually costs 2% and then on either end, cheaper than the basic cards are Visa/MC debit cards, and then there’s the super premium cards that Richard Branson probably has a pretty fancy card that he walks around with in his wallet and I bet you it has a pretty high interchange cost attached to it. But those cards are rare. What you’ll find is the debit cards usually wipe out the super rewards cards. So we can just generalize and talk about the basic cards to the corporate cards. Cost is from 1.5% to 2% on average. The more you target an upscale clientele or wealthy type of client, the cost will average higher because they will use more rewards cards.