Effective rate calculator

Why a headline rate and an effective rate are never the same

A card fee is not one price. It is three layers plus a fixed charge, and only the last two are negotiable.

Layer one: interchange

Interchange is set by the card networks and paid to the bank that issued your customer's card. It is the largest part of the fee on most transactions. It is also not something a processor can discount, because the processor never keeps it. Interchange varies by the kind of card presented and how it was presented: a consumer debit card tapped in person is at the cheap end, a corporate rewards card keyed in over the phone is at the expensive end. This is why your rate can move between two months in which you did nothing differently. Your customers changed which cards they carried.

Layer two: network assessments

On top of interchange, each network charges its own assessment on every transaction: a small percentage of volume plus a small fixed network fee. These are published by the networks and are the same for everybody. They typically add a little over a tenth of a point. Use the figures on your own statement rather than a default.

Layer three: the markup

This is the processor's own margin, and the only part of the percentage that is genuinely a quote. On interchange-plus pricing it is stated openly as a number of basis points plus a few cents. On flat-rate pricing it is invisible: the headline rate is interchange, assessments and markup already blended into one figure, which means the markup is whatever is left after the first two layers, and it moves transaction by transaction without you seeing it. That is a description of flat pricing generally, ours included: the trade is visibility for predictability, and it is a reasonable trade for plenty of businesses.

And then the fixed fee

The part people discount in their heads, and the part that most often explains the gap between the quote and the statement. A fixed per-transaction fee is a percentage whose size is set by your average ticket:

Illustrative, assuming no monthly fees. Arithmetic: 0.30 divided by the ticket, times 100.

This is the single most useful thing to know when you look at a quote. If you run a coffee shop, the per-transaction fee is your pricing. If you invoice $8,000 at a time, the percentage is all that matters and the per-transaction fee is a rounding error. The same quote is a different deal for the two of you.

Comparing a flat rate against interchange-plus honestly

Neither structure is cheaper in the abstract, which is why this calculator lets you model both and does not pick a winner for you.

• Flat rate is predictable and easy to reconcile. You subsidise the average: your cheap debit transactions pay a little more than they cost, and your expensive rewards-card transactions pay a little less. If your card mix is unusually cheap, you are on the losing side of that trade.
• Interchange-plus shows you the cost and the margin separately, which means you can see what you are paying for. It usually wins as volume grows and on debit-heavy mixes. It often comes with monthly fees, so at low volume a $25 statement fee can wipe out the saving, and the calculator above will show you exactly where that crossover sits for your numbers.

Where we are standing, for the avoidance of doubt: Flux's own standard price is a flat rate, for the same reason flat pricing is common — it is predictable — with interchange-plus available as volume grows. This calculator has no provider's pricing in it, ours included, and it does not pick a winner.

The useful exercise is not "which is cheaper" but "what is each one's effective rate on my volume, my ticket and my card mix". That is one number against one number.

What this calculator does not know

It is arithmetic, not an audit. Specifically, it cannot see:

• Your real interchange mix. The default of 2.15% is a placeholder chosen to be plausible for a card-not-present mix, not a figure off anyone's statement. Your actual blended interchange depends on your card mix and how you take payments, and the only honest source for it is your own statement.
• Downgrades. Transactions that miss the data requirements for the rate they qualified for get billed at a more expensive category. On keyed-in and B2B volume this is a real and recurring cost that no quote mentions.
• Card-present against card-not-present. They price differently. If you do both, your statement is really two businesses averaged together.
• American Express, international cards and PIN debit, which all follow their own pricing logic.
• Incidental fees. Chargeback fees, retrieval fees, batch fees, early termination fees and monthly minimums. Put the ones you know about into the monthly fees field.

To get your true figure, do the division on a real statement: every fee charged, divided by volume processed, in the same month. Then compare that against what this calculator says a quote would have cost you on the same month's numbers. That comparison is worth more than any sales conversation.

Three questions worth asking about any quote

1. What is the per-transaction fee, and what is my average ticket? If the answer to the second question is small, the first one is your real rate.
2. What is on here monthly, regardless of whether I process? Statement, gateway, PCI, account, minimum. These are the fees that make a low rate expensive at low volume.
3. Is there a reserve, and what triggers one? Nothing to do with your rate, and far more consequential. A quarter of a point either way is a few hundred dollars a month. A reserve is a five- or six-figure sum of your own money held for months. We built a calculator for that one too, because it is the number people find out about last.

If the reason your pricing looks the way it does is the label on your account, the high-risk payment processing hub sets out what that label is made of, what it changes and what it does not.