How much do banks charge restaurants/stores for credit card tranactions?
Answer:
There are different ways for credit card processors to charge any business. Different processors use different methods. All processors pay the same purchase rate to Visa/MC, American Express, Discover, Diners Club, etc. This purchase rate is called "interchange". They make their money by marking up the rate and reselling it to you. The rate you pay is VERY negotiable. You need to know what is possible in order to negotiate a good program for your business.
Bundled rate:
A bundled rate lumps all credit card transactions into 3 types, though there are up to 21 types of transactions depend on the credit card used. The three types are "Qualified", "Mid-Qualified" and "Non-Qualified". With a bundled rate, every one of the 21 possible types of transactions falls into one of these 3 categories, each category costing more than the previous to process. Bundled rates can either be a flat percentage fee, or a percentage fee plus a swipe fee. A percentage fee is a charge based on a percentage of the dollar amount of the transaction. A swipe fee is a flat charge each time a card is swiped. For Mid-Qualified transactions, an additional percentage is charged, and an even larger additional percentage is charged for Non-Qualified transactions. Contracts can be signed to "lock in" rates. Bundled rates, if negotiated correctly, are very good for low ticket businesses such as an average restaurant.
Variable rate:
Some processors offer a "bundled" rate that changes based on the transaction type. There can be as many as 21 different rates charged depending on the card type. Sometimes there are swipe fees, sometimes not. The rates in this type of program are variable, meaning they change as Visa/MC and the other companies change their rate. This type of program is the hardest for a business owner to monitor to ensure they are not being overcharged. I don't recommend variable rate programs for any business.
Interchange plus rate:
Some processors charge businesses based on the current price they purchase at, plus an additional swipe fee. Since there are 21 different rates they buy at, the rate you pay is based on the type of card used during the transaction which range in percentage fee but use the same swipe fee. This type of program allows for the lowest percentage rate possible, but always incurs a swipe fee. Interchange plus programs are very good for large ticket businesses, but expensive for low ticket businesses.
There are other types of rate programs different processors use. They can set up your charges any way they want, and call it whatever they want.
The program that is right for your business is dependent on the particular dynamics of your credit/debit card transactions. Despite what credit card processor sales people will tell you, there is no "one" program that is right for every business. The one that is right for your business is the one that yields the lowest "net effective rate". This is the total cost of accepting credit cards including percentage fees, swipe fees, statement fees, memberships fees, batch fees and everything else, divided by the total volume of credit card sales. Don't get fooled by a sales person that simply quotes a low rate. A 2% percentage rate can yield a 3.5%-4% net effective rate.
As a consultant, part of my business is negotiating contracts for my clients, including credit card processing contracts. I aim to get my client's net effective rate below 2.2%, and possibly below 2% in some cases. I charge a flat $50 fee to negotiate a credit card contract. My clients save at least double that in the first month. Savings range from $110 per month to $400 per month for most my clients.
On a side note, any restaurant requiring a minimum purchase amount to use a credit card, offering a cash discount, or charging a customer to use a credit card, is violating their processing agreement with Visa and Mastercard. They should be reported. There's no reason to require a minimum if their credit card contract is properly negotiated.
Brandon O'Dell
O'Dell Consulting
Restaurants / Retail / Bars
bodell1@cox.net
http://www.bodellconsulting.com.
Free initial consultations
3% is standard .
cheers
some 2-3%
of total sale
at my place..its 2% of total bill
some merchant charge 2 some 2.5 n some 3%.
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