Credit Card Processing

1.54% “Flat Wholesale Rate”

by Ben Dwyer

Sometimes it’s easier to explain pitfalls in credit card processing by using real situations our clients have encountered. The 1.54% “flat wholesale rate” is one example.

I have a question about a specific company – [removed to protect the guilty]. They are saying the rate they can provide is 1.54% on qualified and mid-qualified cards (“flat wholesale rate”). The only other rate is “up to 4.61%” on non-qualified cards. Then they charge a three-cent credit card transaction fee and no basis points. Is this true and possible?

Thank you,
Dan H.


Hi Dan,

Thanks for sending your question along. I’ve learned that anything is possible after having helped countless businesses lower their fees here at CardFellow. What this processor is telling you is inaccurate, misleading, expensive, and not in the best interest of your company.

It’s important to learn the basics about how credit card processing charges truly function before you start talking with processors. I will outline the general points in my answer below, and I will link to articles here on CardFellow that cover topics in more detail.

By the time you’re done reading, you will be able to see exactly what is wrong with what this company is selling.

There is no such thing as a “flat wholesale rate.”

The three components of credit card processing cost are interchange fees, assessments, and markups.

The sum of interchange fees and assessments is the credit card processing industry’s version of wholesale cost. The 1.54% rate that this processor is quoting is about as far from “wholesale” as rates get. The reason is that this rate is not based on interchange. Instead, the rate is based on the processor’s qualification. We’ll go over that more next.

Check out our article on credit card processing fees to get a complete picture of the components of processing expense.


Avoid tiered pricing like the plague.

The qualified, mid-qualified and non-qualified rates that this processor is quoting are based on a tiered pricing structure. Tiered pricing is expensive, opaque and results in hidden fees and surcharges. As we’ve outline in the following article, non-qualified fees are very much a figment of your processor’s greedy little imagination.

There are two main pricing models that credit card processors use to assess fees. The first is called tiered (also referred to as bundled), and the second is called interchange pass through (also referred to as interchange plus).

Tiered pricing allows a processor to inflate your fees through “non-qualified” surcharges, intercept interchange credits, and raise overall cost without having to raise “rates.”

non qualified rate

For these reasons, we do not allow processors to quote tiered pricing in the marketplace here at CardFellow.

Unlike tiered pricing, interchange pass through separates the components of credit card processing expense allowing a business’s processing rates to be based directly on true “wholesale.” Interchange pass through eliminates surcharging, allows for interchange credits, and results in a flat markup over actual cost.

In helping businesses here at CardFellow, we have found that tiered pricing is roughly 42% more expensive than pass through pricing.

You do not want to use the tiered pricing that this processor is claiming to be “flat wholesale rates.” This statement is completely inaccurate and misleading.

“No basis points.”

A basis point is a financial term that refers to 1/100 of a percentage point. For example, ten basis points are equal to 0.10%.

This processor couldn’t be further from the truth when claiming the markup does not include basis points. In fact, the non-qualified rate of 4.61% is four hundred sixty-one basis points! The processor’s representative may mistakenly be mixing terminology for pass through and tiered pricing.

A processor’s markup (its rate) for pass through pricing does not include interchange fees, and tiered pricing combines a processor’s markup (rate) with interchange. For example, 1.54% is a typical bait-and-switch credit card processing rate for tiered pricing. An example of a typical pass through rate would be 0.25%.

The Solution

This processor is attempting to sell you a merchant account that will result in high costs and hidden charges. Ideally, you want a merchant account that is based on pass through pricing that does not have a cancellation fee. That is why we require processors to quote only this type of account here at CardFellow.

You will benefit greatly if you take a moment to sign up here at CardFellow. It’s free, private (processors are not shown your contact information), and you will have access to a lot of helpful and accurate information about credit card processing including cost estimates, a comprehensive breakdown of fees, and more.

Give it a shot! Click here.

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Ben Dwyer

BY Ben Dwyer

Ben Dwyer began his career in the processing industry in 2003 on the sales floor for a Connecticut‐based processor. As he learned more about the inner‐workings of the industry, rampant unethical practices, and lack of assistance available to businesses, he cut ties with his employer and started a blog where he could post accurate information about credit card processing. As the blog gained in popularity, Ben began directly assisting merchants in their search for a processor. Ben believes in empowering businesses by providing access to fair, competitive pricing, accurate information, and continued support. His dedication to transparency and education has made CardFellow a staunch small business advocate in the credit card processing industry.

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1 COMMENT

  1. from Bill Plummer, on July 17, 2012

    When something seems to good to be true– it is.