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Transaction Rate vs Effective Rate – What’s the difference and why you should care!

As a business owner, every penny matters. Imagine saving $30,000 per year on credit card processing. How would you reinvest that money into your family entertainment center (FEC) or amusement park? A new attraction? A new hire?

Knowing the difference between your transaction rate and effective rate could save you a lot of money.

You may have a great transaction rate for credit card processing at your FEC, but what you should really be concerned with is the effective rate. Let’s take a look at each:

Transaction rate is the amount paid specifically for each charge posted. 
Example: Interchange* + 0.2% and $0.10 per transaction

*Interchange fees are the actual costs from Visa, Mastercard, Discover, AmEx.

Effective rate is the amount paid per transaction AND all additional fees
Example:  Interchange + 0.2% and $0.10 per transaction and any monthly fees, PCI fees, hidden fees, etc.

So you can see that while someone may have an attractive transaction rate, once you add in all of the extras, their effective rate might not be that appealing. A 2.2% transaction rate sounds great until it’s really 4% effective rate with all the added-on junk.

How can you calculate your effective rate?
It’s easy! Divide your total fees by the total sales in any given month.
Example: $2200 fees / $100,000 sales = 0.022 = 2.2%

What are good effective rates? 
On average, you should expect to see 1.8 – 2.2% for card present transactions and 2.6 – 3.1% for card not present (online/phone). Rates can affected by types of cards presented and processing volume.

What are some hidden/junk fees to look for? 
There are many names for hidden/junk fees, including:

  • Statement fee
  • Monthly fee
  • Yearly fee
  • PCI non-compliance
  • Batch fee
  • Batch Settlement Fee
  • Network & processor Access fee
  • Discount Adjustment
  • Review trackers
  • Safer payments
  • The list goes on and on!

The best way to find exactly what you are paying in hard costs vs fees and extras is to review your statements with a trusted advisor. With over 400 locations in 36 states, FECFIN is the go-to resource for the FEC industry’s credit card processing. Contact us to learn more and for a free deep dive analysis of your current situation.

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