Survey: Many People Don’t Understand Credit Card Processing But They Think They Do
A recent survey conducted here at CardFellow uncovered a disturbing trend — many people don't understand credit card processing fees, but they think they do.
What we saw when the results were in is that 65% of respondents claimed to have a fair to very good understanding of credit card processing fees while 81% claimed to have fair to no knowledge of interchange. And of that 81%, 35% had never even heard of interchange.
About 65% of people reported having a fair to very good understanding of interchange fees.
About 81% of people reported having a fair to very good understanding of credit card processing fees.
Huh?! How can people claim to understand credit card processing fees when they haven't even heard of the system on which the fees are based?
After scratching our heads for a while, an explanation began to surface. People are reporting fair to very good knowledge about just one form of credit card processing fees — they don't see the big picture.
You see, credit card processors use two basic types of pricing called bundled (often referred to as tiered) or pass-through (often referred to as interchange plus). The bundled model is easy to understand (on the surface), only has a handful of rates, produces large profits for processors, and is the most widely used pricing model in the marketplace today. Note that those last two points aren't a coincidence.
In a nutshell, bundled pricing operates by hiding the actual cost of credit card processing by generalizing individual interchange fees into only a few broad categories called "qualified", "mid-qualified" and "non-qualified." People never get to see actual credit card processing fees — they just see their processor's version of fees.
We help people all the time here at CardFellow who think they're paying 1.59% to process credit cards because that's their processor's "qualified" rate. And they feel comfortable in their knowledge of processing fees because they've never been taught how things actually work.
A big reason for the general confusion about credit card processing fees is the lack of reliable, accurate information. Processors that sell bundled pricing don't want people learning about how processing really works because it would negatively impact their bottom line.
Many processors that rely on bundled pricing to inflate profits don't even educate their own sales staff about how credit card processing fees and interchange really work. Instead, they allow their sales people to pass erroneous information to business owners and managers who take it as fact.
The result of such poor business practices is highlighted in our survey where 65% of people think they understand what they're paying to process credit cards, when as many as 81% are simply being kept in the dark, misled and overcharged. This is certainly a case where ignorance is far more expensive than blissful.
Our survey should serve as a wakeup call for people to revisit what they're really paying in credit card processing fees, and to research how the fees are actually calculated. Take a look at the information available at CardFellow about interchange, tiered pricing and interchange plus.
In contrast to bundled pricing, pass-through pricing (often called interchange plus pricing) appears more complex but is actually more transparent, passes actual processing rates directly to merchants, and produces smaller profits for processors.
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About the survey:
CardFellow surveyed 100 people before they signed up to gauge their understanding of credit card processing fees. The complete survey is listed below.
|How would you rate your understand of credit card processing fees?|
|How would you rate your understand of interchange?|
|I've heard of it||29.64%|
|Does your business currently accept credit cards?|
|How much does your business process monthly in credit card sales?|
|We don't accept credit cards||15.9%|
|Less than $1,000||12.2%|
|Between $1,000 and $5,000||15.9%|
|Between $5,000 and $10,000||11.0%|
|Between $10,000 and $50,000||20.7%|
|Greater than $50,000||24.4%|