How Credit Card Rates Work (And How to Reduce Them)

As cashless transactions increasingly become the norm, businesses, nonprofits, and even churches are forced to contend with payment processing rates.

Credit card companies or payment processors levy this charge because they act as an intermediary between the merchant and the credit card system. However, the pricing systems aren't always transparent or ethical – especially regarding donation management for ministries or churches.

Want a straight answer on your credit card rates? Learn how the system works, the card types affected, and how to reduce your payment processing rates below.

In this article:

What is a Credit Card Rate?

A credit card rate, or payment processing rate, is a fee merchants pay for every credit card transaction they complete. Usually, this fee is paid per card transaction and is calculated as a percentage of the total.

The rates include the following fees:

Interchange Fees: Determined by card networks and given to the card's issuing bank. They change based on the card and transaction types.
Assessment Fees: Fees from card networks for using their system, usually a set percentage of the transaction.
Processing Fees: Added charges by payment processors that include the above fees and vary by transaction type.

For merchants, these fees are usually combined and aggregated so that they are taken together as a lump sum at the end of the month. However, it's not just credit cards that are subject to payment processing rates; transactions made with debit cards, prepaid cards, charge cards, and business or corporate cards also incur a percentage fee.

Despite payment processing fees being fairly standard across the card types, the exact fee percentage or structure can vary significantly. For example, American Express charges an interchange fee of 2.3% to 3.5% with an assessment fee of 0.165%. In contrast, MasterCard only charges an interchange fee of 1.5% to 2.6% with an assessment fee of 0.1375%.

How Do Payment Processing Rates Work?

Not all payment processors calculate your credit card rates at the same rate. That depends on their pricing strategy. There are three common strategies:

Tiered Rates

The most popular approach – tiered pricing involves categorizing transactions based on their types. Typically, processing companies establish three main tiers:

Qualified Rates. The most affordable tier, covers low-risk transactions like swiped debit cards and non-reward credit cards. Due to their low risk and straightforward nature, they enjoy lower interchange rates and fees.
Mid-Qualified Rates. A middle tier for transactions not in the qualified rate category. It includes membership reward cards, loyalty cards, and manually keyed entries, carrying slightly higher fees than the first tier.
Non-Qualified Rates. The priciest tier, reserved for high-risk transactions such as corporate cards, high-reward credit cards, international cards, and card-not-present transactions. The greater risk incurs higher fees.

Tiered pricing seems like a fair approach. However, for some smaller businesses, specific industries, and donation management, the inability to know how much you'll spend monthly on fee payments presents a significant challenge – especially if you receive a big payment or donation from a mid-risk or high-risk card.

Flat Rates

Flat rates apply a uniform charge to all transaction types. Companies like Square, Stripe, and PayPal all fall into this category.

Initially, this system seems simple and attractive, especially to start-ups and new businesses. However, this strategy capitalizes on consumer ignorance, often overcharging for lower-cost transactions.

For example, a low-risk transaction like a swiped debit card, where the money is already present in the customer's bank, would incur the same charge as a corporate card or international card, where the risk is significantly greater. No matter what, you'd pay the set amount.

Interchange Plus

Interchange plus pricing is, in our view, the most transparent and ethical pricing model. It involves charging the precise interchange rate established by the card network plus a consistent markup for the processor (hence the name). No false markups. No confusing tiers. Just a standardized, transparent cost for each transaction.

We believe this model is ideal for businesses and donation management. Given the value of every dime and cent to organizations like ministries and churches, this strategy ensures as much of the donation as possible goes where it was intended.

Paperless Transaction Corp relies solely on interchange plus pricing. Our clients pay a clear and predictable fee on top of the interchange rate set by card networks. As an ethical payment processor, this approach eliminates hidden fees and unexpected surcharges, allowing businesses, ministries, churches, and others to know what they'll pay per transaction.

How to Reduce Your Credit Card Rates

Want to ensure you receive as much money as possible? Doesn't everyone! Here are some simple tips:

Avoid flat-rate pricing, as it's almost always the most expensive model. Opt for a processor that uses an interchange-plus pricing system to save you money.
Switch processors to find an ethical and transparent company that offers you the best deal. You could attempt to negotiate with your current payment processor. But, if in doubt, switch.
Reduce avoidable fees, such as PCI compliance fees or terminal lease fees, if possible. Always try to work with a processor who doesn't add on these unnecessary payments.

Closing Thoughts

Card types, pricing strategies, and interchange rates all add to the confusion behind payment processing rates. Don't spend more than you have to. Whether you're a church or business, we're committed to an ethical, transparent pricing model.

Paperless Transaction Corp and other ethical payment processors are a beacon of transparency in this labyrinthine landscape. We believe our pricing model fosters trust and confidence.

Want to learn more? Schedule a free consultation today for reliable and consistent payment processing rates.