If you are a small business owner, you’ve most likely agonized over your credit card processing rates and wondered whether or not you have the best ones possible. With the majority of processors relying on negotiations and charging hidden fees, it can be hard to know what the best rates really are. To understand what the best credit card processing rates for small businesses are, it is important to know what options you have, what’s included in the rate, and what’s negotiable.
Knowing Your Processing Rate
To understand if your rate is “good” or not, you first need to understand what exactly is included in the rate you are looking at. The most common rates you’ll see are percentage markup rates and effective rates.
Percentage Markup Rates
Percentage markup rates are the rates a payment processing provider charges in addition to interchange. These rates can vary from 0% to 3% therefore when looking at a percentage markup rate, you want to be as close to 0% as possible. Stax, for example, charges 0% markups on top of interchange, giving you the lowest percentage per transaction rate possible. However, the percentage markup rate does not give you a full picture of your processing costs.
The effective rate is what you want to look at to truly understand how much you are paying for your credit card processing. The effective rate is calculated by adding up every cost related to processing credit cards, divided by total sales.
These processing costs include interchange, percentage markups, ancillary fees, transaction costs, etc. Thus, the effective rate is the best indicator of whether or not you are paying too much for your payment processing.
Understanding Interchange Rates
The one part of your effective rate that you can not negotiate or change by switching providers is interchange. Interchange rates are set by the credit card companies themselves and are the same for every single business owner. You can think of interchange rates as your base rate. Everything on top of the interchange will increase your effective rate and vary depending on the provider.
For example, Stax charges a flat monthly membership in exchange for a 0% markup rate, a transaction cost of just a few cents, and no ancillary fees. Since the only processing costs other than interchange are flat (the monthly membership and a few cents per transaction), effective rates with Stax are close to interchange and tend to decrease as transactional volume decreases.
Traditional providers who charge percentage markups and ancillary fees will have higher effective rates and those rates will stay the same or increase as transactional volume increases, ultimately costing your business more money.
Getting the Best Rate
In order to ensure you have the best credit card processing rates possible for your small business, avoid providers who charge percentage markups and ensure that you always understand what fees to expect from your provider. Asking questions and paying attention to your credit card processing statement will help you never be surprised by an increase in your effective rate.
With Stax’ all-in-one platform there are no hidden fees. Our goal is to ensure that you’re spending less on payment processing and putting more money back into your business’s bottom line. We are happy to help you calculate your effective rate as well as tell you what it would be if you were to process with Stax.
Contact a Payments Consultant today to see all the ways you can be saving money by using a more transparent, reliable credit card processor.