The True Cost of Accepting Payments

You make the decision to accept payments any way your customers may want to pay – credit card, debit card, mobile payment options, etc. Your statement comes and you realize how expensive it is each month. Sound familiar? Maybe you’ve accepted these fees as a “simple cost of doing business”. Here is the reality – there is a very high chance you are overpaying for accepting these payments.

Why it’s so Expensive to Accept Non-Cash Payments From Customers

The actual cost of accepting non-cash payments from your customers could be substantially less than what you’re currently paying. Most companies have a considerable amount of overhead including paying sales people, other personnel salaries, office expenses, rent, etc. Those things cost a lot. You are the one who pays for those expenses! Those expenses are included in how much you pay to accept non-cash payments. There are many added fees each month on your statement – almost none of them need to be there! Monthly admin fees, statement fees, seasonal fees, maintenance fees, annual fees, authorization fees, 5 cents (or more!) in added transaction fees to accept credit cards – the list goes on and on!

Almost all charges go to pay the overhead of your processor. These extra charges are all added costs that have nothing to do with what it actually costs to accept Visa, MasterCard, debit and other payments. That is money that should be staying in your business.

How Much Does Accepting Payments Actually Cost?

Each individual card has a cost to accept. Debit cards cost a few cents to accept while credit cards vary depending on which incentive customers have to use it (air miles, cash back, rewards, etc.) The more the customer gets for using it – the more expensive it is for you to accept. This rate is decided by the card network (Visa, MasterCard, etc.) This rate is called interchange. That is what has to be paid to Visa, Mastercard, etc. Visa and MasterCard also charge a small pass through fee to use the network and assess which kind of card is being used. That’s it. Any other fees you see on your statement are from your processor (Moneris, Chase, TD, Elavon, etc.).

Of course, your processing company needs to make enough to pay for customer service, statement delivery, etc., however,  more often than not, businesses are being charged excessively by their processors to pay for things that do not bring value back to their business.

Some fees you can’t get away from if you want to accept non-cash payments from your customers. Other fees you should never pay again. You should not pay for any recurring fixed monthly fees.

Different Pricing Structures

Processing companies use different pricing structures. Some pricing models are designed to purposefully be confusing and misleading. You will see some processing companies advertising 1.26% or something similar. This is misleading because you will almost never pay that rate. That is because they are using a pricing model that will only give you that rate for specific cards that your customers have no incentive to use. How often does a customer use a credit card with no air miles, cash back, rewards, etc.? Rarely. When a customer uses one of those cards (which is almost always the case) you have to pay an additional “unqualified” surcharge. In addition to that, most processor then add a per transaction fee on each credit transaction. Add on the other monthly fees that are not advertised and you see what you’re actually paying is between 2.5% – 3.5%.

The most transparent pricing model is known as interchange plus – also known as i-plus or cost plus pricing. This is when the processor passes on the cost that the card network (Visa, MasterCard, etc.) charges and adds a fixed markup on top. This is the most transparent pricing model because you will always know what you are paying above the cost of interchange (what card networks charge) regardless of what card your customer uses. This pricing model has the lowest margin built in for the processor. This is why when a processor chooses to use this pricing structure they often add other fixed recurring monthly fees.

This is how interchange plus pricing looks.

No one has control over how much card issuers like Visa and MasterCard charge. What can be controlled is how much you are paying above that cost. The amount above interchange (the amount charged by the card network) is what the processor makes. You want that amount to be as low as possible.

You will get the best rate by coupling interchange plus pricing while not paying any other fixed recurring monthly fees (monthly admin fees, statement fees, seasonal fees, maintenance fees, annual fees, authorization fees, etc.).

The Introductory Rate Bait and Switch

Getting new customers is expensive for any business. Most processors will give you a great rate when you initially sign up and slowly raise your rate after a few months. This is a sales tactic many processors use to lure new customers in. Very few processors will provide you with a guaranteed rate. They plan on charging you more soon after you become their customer. Remember, as their expenses increase – so will yours!

Look to get a guaranteed rate from your processor. If they are not willing to provide you with a guaranteed rate then you know their plan is to add more fees within a few months.


The statement you receive from your processor can be hard to read. There is a rate that has to be there by law and it includes all the other fees you are paying. That rate is called the Effective Merchant Discount Rate (EMDR). Your EMDR is the true cost of accepting cards. You will have an EMDR on your statement for each card type you accept (Visa, MasterCard, debit, etc.).

That rate is located in different places on your statement depending on which processor you are with. Look for that rate and compare it with what other processors are offering.

How Much Processing Should Cost Your Business

This is the formula you should follow to make sure you are paying the lowest rate to accept non-cash payments from your customers:

Interchange Plus Pricing + No Fixed Recurring Monthly Fees + Guaranteed Rates

You also want to make sure that the cost above interchange is as low as possible and will not increase.  

Some Thoughts About the Credit Card Terminal

There are three ways to pay for a credit card terminal with a processor: rent, lease or purchase. Each has advantages depending on your business. Be careful when making your decision about which credit card terminal you want. Be sure to ask about monthly cost, contract length (if any), and terms for cancelling.

Accepting non-cash payments from your customers can mean a lot more sales for your business. It doesn’t need to mean losing an unnecessarily large margin of each transaction you make.  

Be sure to share this article with other business owners so they too can learn the true cost of accepting non-cash payments from their customers!