What is a good rate for credit card processing?

One of the most common questions we get from a potential client is: "What is your rate?" This, of course, is a perfectly normal question to ask, but it opens the door for questionable practices if you aren't informed.

There are plenty of organizations and salespeople out there essentially selling on teaser base rates or "qualified" rates. As the merchant, it's crucial that you understand how credit card processing works so you don't fall victim to these practices.

There is nothing inherently wrong with these tiered pricing models (a base rate, plus interchange differential fees and non-qualified fees), but you must fully understand how they work to make an informed decision on your credit card processing provider. If you don't ask the right questions, a salesperson could lure you in with a great base rate without fully explaining what your total fees will look like.

Commendably, the Financial Consumer Agency of Canada has pushed through tougher regulations around credit card processing in the interest of the merchant, but unscrupulous salespeople will always find a way if you're not asking the right questions.

The Cost Plus Advantage

By contrast, Cost Plus pricing (otherwise known as Interchange Plus pricing), is fully transparent. Quite simply, the true cost of each credit card (its interchange rate) is passed on to the merchant. For example, the interchange rate of a VISA Infinite card, a very common card type, is 1.61% in a card present environment and 1.71% in a card-not-present environment.

With Cost Plus, the merchant accepts every single card out there at cost. Then, a small fixed markup is charged on total volume at month's end.

High-volume businesses have long been on Cost Plus pricing but very few processors offer it to merchants of all sizes. The brutal truth is that it's harder for you to understand if someone can save you money when you're comparing tiered pricing models to other tiered models, or to a Cost Plus model, thus the relationship is stickier. It often looks like apples and oranges to the merchant.

On Cost Plus, it's remarkably simple. If you are paying Cost Plus 50 basis points (0.5 per cent) and someone offers you Cost Plus 25, you instantly know what you'll save per month: 0.25 per cent multiplied by your volume.

And where the tiered models mask what the processor's profit is (lumping it in with what the card-issuing banks are making), Cost Plus pricing states it explicitly. The processor's profit is the "plus". All other credit card fees on your statement are the hard cost of the industry (what all processors owe the card-issuing banks and card brands).

Does Cost Plus always work out cheaper?

There are, of course, good tiered deals out there. And, naturally, you can also be in a bad Cost Plus deal based on your volume. But the transparency of the Cost Plus model allows the merchant to understand exactly what they are paying, and to whom, and it puts them in a far more favourable position. It establishes a relationship based on openness and trust, and those are the ones that ultimately last.

That is why at Baseline we say that a good rate is a transparent rate.