The short answer
Every time a customer pays by card, a few parties are paid for their part in it. The largest of those payments is usually interchange: a fee that goes to the bank that issued the customer’s card.
Interchange is not set by your processor. It is set by the card networks and published as a schedule. Your processor passes it along and adds its own charge. That added charge is the markup.
Who gets what on a card sale
A card payment has three layers of cost. Seeing them separately makes most statements easier to read.
| Layer | Who sets it | Who receives it | Does it differ between providers? |
|---|---|---|---|
| Interchange | The card networks, on a published schedule | The bank that issued the card | Generally not, for the same kind of sale |
| Network assessments | The card networks | The card networks | Generally not |
| Provider markup | Your processor or provider | Your processor or provider | Yes, and this is where offers differ |
The words vary from provider to provider, and some providers bundle layers together into one price. Ask any provider to show you the three layers separately, in writing.
Why the same card sale can cost different amounts
Interchange is not one flat fee. The schedule has many categories, and a sale lands in one depending on things such as:
- The type of card: debit, credit, and cards with rewards are often treated differently.
- Who the card belongs to: a personal card and a business card can fall in different categories.
- How the card is accepted: in person, online or keyed in by hand can be treated differently.
- What is sent with the sale: some categories depend on the information that comes through with it.
So two sales of the same size on the same day can cost different amounts, and no one is making a mistake. Your mix of customers and the way you take payments shape what you pay in interchange.
What you can compare: the markup
Because interchange and network assessments are generally the same for the same kind of sale, the layer that makes one offer different from another is the provider’s markup, along with account fees, equipment and contract terms.
This is why asking “what’s your rate?” tends to go nowhere. A rate is a shortcut that can describe one layer, or all three blended together. A better request is to ask what the provider charges on top of interchange and network assessments, and what it charges for everything else. Our guide to payment processing rates versus value covers the common pricing structures and what to ask about each.
The effective rate: useful, but a shortcut
An effective rate is your total processing costs divided by your total card sales for a period. It can be a handy way to ask “what did I actually pay?”
It has limits:
- It is an average, so it can hide which layer changed.
- It moves with your sales mix. A month with more online or keyed-in sales can look different from a month with more in-person sales, even when nothing about the provider changed.
- A slow month can make fixed fees look larger as a share of sales.
If someone quotes you an effective rate, ask how it was calculated, over what period, and what is included. To see how to check it yourself, read how to read your merchant processing statement.
Questions to ask about interchange
If the terms around all of this are new, what a processor, gateway and merchant account each do is a good place to start. When you are ready to compare real offers, the checklist for choosing a payment processor gives you the questions in order.
Once you know which part of the cost is fixed, what is and is not negotiable in your processing rates shows where there is room to talk. Costs also shift with how you sell, which in-person versus online payments explains.