Effective April 17, 2009, MasterCard will assess a Network Access and Brand Usage Fee (NABU) of $.0185 for all U.S. issued transactions settled with MasterCard.

These costs are certain to be passed along to all merchants.  All merchant agreements include language to pass along costs to merchants from Visa, MasterCard, and more recently, Discover.

Merchants will likely see these costs in their June statements. If you are on “pass through interchange” pricing, the costs will be a line item, without mark up. If you are any other type of price plan, the costs may be hidden within other costs, or they may be a separate line item, depending on your overall price plan.  The costs may be passed through as is, or part of a broader cost increase for your fees.

The MasterCard NABU fee comes at the same time of annual Visa and MasterCard interchange updates, and therefore will be included with other fee changes customers will experience in their May or June merchant statements.

How many people do you think click on the ad “1% Credit Card Processing”? It offers FREE Equipment, Same Day Approvals & 24/7 Support. When you click through, you land on a web page that offers no explanation as to how you’ll get 1% Credit Card Processing.

If you believe you can get these rates, then you need to learn a lot more about how merchant rates for Visa & MasterCard are determined, and we have plenty of that information this blog. 1% would be below cost for most merchant transactions, assuming this is not a PIN DEBIT transaction. They advertiser doesn’t even bother to explain how you can get that 1% rate. In fact, it’s not mentioned anywhere on their web site. It’s just a gimmick to get you to click through.

Do you want your credit card processing with a company that tricks you to visit their web site? Merchant processing fees are complex enough without having to sift through deceptive advertising practices.

Costco offers a discount credit card processing solution with it’s partner Nova Information Systems.

Is this a good deal? It really depends on the merchant, their volume and their business set-up. Read the fine print - “Rates listed are for qualified transactions. Reward cards process at a higher rate. ”
What’s a qualified transaction? For the merchant agreement that I reviewed, it is defined as a transaction for a check card ie a debit card. Debit cards have a debit card symbol on them. For most businesses, check cards represent 1-25% of their credit card transactions. That means, the majority of cards presented will not be qualified transactions.

50%-65% of cards presented at consumer retail operations are REWARDS CARDS. This means you need to find out what your rate will be for these as it is likely to be your most common card. If you look at the Costco web site, and most other sites, you do not find out this information until after you complete a ‘pre-application’. The APPLY NOW form almost always includes a disclaimer that the information you are providing is for information only, it is not really an application, because additional information is needed that is not requested in the online forms.

What is the rewards card rate? This can vary depending on your price plan, but with the Nova credit card processing solution, it is a fixed rate, that changes only when there are interchange rate changes.

The Retail and MOTO rates for Costco Members in 2007* were:

Retail / Restaurant:
Qualified 1.64% + $0.20
Qualified Rewards 1.78% + $0.20
Partial Qualified 2.83% + $0.31
Non-Qualified 3.35% + $0.31

Mail/Telephone Order (MOTO) / Internet Accounts:
Qualified 1.99% + $0.27
Partial Qualified N/A
Non-Qualified 3.36% + $0.31

$20.00 Monthly minimum in fees
$.59 Debit transactions
2 Year contract / $95.00 early termination fee

* These rates may since have increased with interchange rate increases.

Based on the information above, the typical transaction for merchants will be 3.36%, since most consumers use Rewards Credit Cards. I’ve seen new businesses paying 4-7% for credit card processing. The Costco deal brings certainty to pricing for start-ups and is certainly lower than some other solutions.

This article should help give you the information needed to compare deals with 3 tiered pricing- qualified, partial qualified (or mid-qualified) and non-qualified. It’s important to get the definitions for each tier, because it may vary by processor.

An established business processing more than $500,000 per year, may benefit from a different type of price plan, one that gives more than 3 price levels.