Net Effective Rate for Credit Card Processing Fees

When you look at your monthly credit card processing statement, (and I'm sure you do in great detail every month... don't you?), have you ever calculated the Net Effective Rate? Really, this is simply a tool to determine exactly what you are paying, in total, for ALL of your fees. This would include all of the following:

• Discount Rates
• Monthly Service Fees
• Statement Fees
• Batch Total Fees
• PCI/DSS Fees (Data Security)
• Debit Access Fees
• Amex Per Item Fees
• Administrative Fees
• Any other miscellaneous Fees

Here's what you should do to come up with a concrete number so you know exactly where you are. Look at your statement for something called "Total Fees Charged" or something similar. Now that you have that figure, locate the total amount of all credit card sales. As an example, a merchant recently sent me a statement showing $519.84 in Total Fees Charged. This was on volume of $19,062.63 for the month of May. Divide the total fees by the total volume and you come up with a Net Effective Rate of 2.72%.

This comes in real handy when you are getting rate comparisons from different companies. Of course, when someone is trying to lure you away from your current provider, they'll present you with their "best rate" which would typically be for a swiped debit card. Let's just say they tell you that is 1.15% + $.25. At a glance, that may sound pretty good compared to what you think you are currently paying.

So, here's what you absolutely must do. Have the merchant rep from the processing company that is trying to attract your business, give you a complete and thorough comparison of ALL fees as compared to one of your current processing statements. Then, do the math and come up with the Net Effective Rate to see how it stacks up with what you are currently paying. Unfortunately, in this industry, reps are very skilled at telling you just enough to make their proposal "look" like it is better than what it ultimately might really be. After all, the bottom line in all of this stuff is... YOUR BOTTOM LINE! Do the math so you don't take a bath.