What Is A Good Effective Rate For Credit Card Processing

Florence Carpenter

Accepting credit cards is essential for most businesses in this day and age. However, monthly processing fees can quickly add up without your knowledge, cutting into your profits and making it difficult to expand and grow. 

To keep them at a minimum, you’ll need to understand the basics of card processing costs and how the effective rate can be a good indicator of cost. Generally, a competitive effective rate is between 2.5 and 3.5%, and if it exceeds 4%  it may be time to find a new processor or find ways to lower it. 

How To Calculate Effective Rate 

To calculate your effective rate, all you have to do is add up all your processing fees and divide this number by your total sales volume and multiply by 100 to express it as a percentage. You can usually find the figures that you need on your credit card processing statement. 

If this figure is lower than 3.5%, you are generally average. 

Factors That Can Impact Effective Rate 

If your effective rate is higher than you would like, there may be some reasons behind this. For instance, your specific industry is tied to your level of risk, and because of this, you may need to pay higher than average rates. Other factors include: 

  • Hidden fees and incidental fees in addition to interchange rates
  • A smaller than average transaction size
  • The cost of international charges such as currency conversion
  • Higher than average processor markup fees 
  • Security fees

If you’re unhappy with your current effective rate, it may be time to see if you can negotiate a better rate with your provider or switch payment processing services entirely. It may seem small, but tiny percentages can add up over time and negatively impact your bottom line. 

To learn more about the best processing services for credit cards and how you can keep these costs down, check out the rest of Processing Card today.

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