Credit card processing effective rate calculator

Use this tool to calculate your merchant account effective rate. Credit card processing effective rates are critical for peer and industry benchmarking, especially merchants with pass through interchange or interchange plus pricing.

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  • If your business is cyclical, choose a high volume month
  • Subtract any unusual fees. For example, if you have an annual PCI Compliance fee on the statement examined, deduct from fees paid.
  • If American Express revenues are on the merchant statement, but fees are paid separately from your merchant account (common), enter net American Express revenues.
  • If Discover or other card brand fees are on the merchant statement, but fees are paid separately from your merchant account (common), add it to the American Express revenues. (The field name is not important, just that it will be subtracted for analysis.)
net sales submitted

Example step 1, Page 3 of merchant statement with pass through interchange pricing.

pass through interchange pricing

Example Step 2, 2nd to last section of merchant statement with pass through interchange pricing.

Step 3: Resulting effective rate:

effective rate example resultsQ&A:

What is the effective rate for my industry?

Annual revenues impact the effective rate because there’s a baseline profit any acquirer wants to make in order to support your business. My expertise is in omnichannel (mixed card present and card not present) companies with $1M plus annual processing, particularly automotive parts, building materials, and industrial supplies. 100% of them should have less than 3% effective rate. For those with larger retail component, it might be in the range of 1.3-1.5% and for building materials with strong mix of card not present, it’s might be 2.2-2.5%.

Why is my effective rate higher than another similar company, if we both have the same discount rate? Effective rates can be influenced by systems and people. For example, split testing within the same company has shown significant result variances with different payment gateways. Effective rates are a marker of processing efficiency; merchants using automated interchange management systems generally have the lowest effective rates.

Resources: Not sure where to find the numbers to plug in? Watch these videos for First Data, Paymentech and Paypal Pro.

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What’s your effective rate? Industry? (retail, B2B). Is your rate for retail swipe, phone/ecommerce, or both?

5 Level III Processing Requirements To Reduce Merchant Fees

Business to business merchants seek processors that support level III processing, however, not all solutions are equally effective at helping merchants qualify for level 3 interchange rates.

interchange management

Automated interchange management combined with level III processing maximize merchant profits.

  1. The merchant must have merchant account with a processor that supports level III data. Processors often have multiple platforms and not all their platforms support level III data.
  2. The merchant must also have a qualified MCC code, the business type that goes on the merchant application. For example, manufacturers, distributors, automotive new car dealers, parts retailers have qualifying MCC codes.
  3. The merchant needs a system to submit level III data. The two common types are desktop software and payment gateways. Cloud payment gateways provide numerous benefits vs desktop software.
  4. The authorization and settlement amount must be equal.
  5. The settlement must occur within the required time. The initial authorization is valid for 24 hours for retail and 72 hours for MOTO (mail order, telephone order key entered) and ecommerce. After that, while the transaction is usually honored by the card issuer, it does not qualify for the lowest interchange rate because the authorization is invalid.

Merchants should seek payment solutions with automated interchange management tools, in compliance with payment acceptance rules. Additionally, if using an integrated payment gateway solution, ask a payments professional with expertise in interchange rates to review interchange qualification. Errors or omissions that impact interchange rate qualification are common, however, once fixed, non-qualified transactions generally do not reoccur.


What is MasterCard new Business Level 3 and Level 4 interchange program?

I was confused enough by wording in a recent email newsletter regarding July 2013 interchange updates that I wanted to share an explanation regarding Small Business Spend Processing and the impact on merchants, not to be confused with Level 3 data and level 3 processing.

Here’s an excerpt of the email. The key July changes include:

  • MasterCard will introduce new Business Level 3 and Level 4 interchange programs to support the new Small Business Spend Processing program.

Interchange is the main component of merchant credit card processing fees. Each credit card issued (card type) has multiple rates associated with it, with the best rate, or qualified interchange rate, achieved only by meeting all the criteria required. Merchants can influence which of the typical 3-4 rates associated with each given card type their transactions qualify for.

For business, corporate, and purchasing cards, the criteria for the lowest qualified rates includes providing enhanced data, also known as level 3 data. This is not to be confused with the new Business level 3 and 4 interchange rates, which are dependent on how much the cardholder spends.

Transactions on Business cards that participate in Small Business Spend Processing will qualify for programs based on annual cardholder spend, reviewed quarterly. Spend amounts are reviewed quarterly and updated annually.

  • $25,000-49,999 = Business level 2
  • $50,000-99,999 = Business level 3
  • $100,000+ = Business level 4

Merchants do not need to do anything to qualify for the new interchange rates. It’s business as usual.

Example: A participating small business paying with MasterCard Elite Worldcard could result in these interchange rates for a merchant, plus $.10 per transaction:

  • Business level 3, World Elite Data Rate I, 2.86%
  • Business level 3, World Elite Data Rate II, 2.16%
  • Business level 3, World Data Elite Rate III, 1.96%
  • Business level 4, World Data Elite Rate III, 2.06%

3 critical elements to qualify for Data Rate III are:

  1. sending level 3  enhanced data
  2. authorization and settlement amount are equal
  3. transaction is settled within required timeframe, usually 72 hours from the initial authorization

A lot of business to business companies don’t have transactions that meet all three criteria, so even though they’re set up for level 3 processing for credit cards , the transactions don’t all qualify.*

DISCLAIMER: The information in this article was scoured from the internet and may contain forward information subject to change, or erroneous data. Conceptually it’s accurate, however, specific numbers and rates may not be.

* Contact us for solutions to the level III qualification problem.