Why It’s Impossible to Calculate the Cost of Payment Processing

Here at Lucid Payments, we get a lot of people who call us demanding to know exactly how much they’re going to pay for their payment processing. One example of this is when our VP of Operations, Steven, had a conversation with a guy who sells furniture, who demanded to know exactly how much his monthly bill would be if he chose to go with us. “Why can’t you tell me what I’m going to pay?” he asked. Steven, who’s getting tired of these kinds of discussions, responded by saying, “Can you tell me what the cost of lumber is going to be next year?” The furniture salesman wasn’t too pleased with this answer and looked at Steven like he was an idiot. Still, Steven explained to him that just as he can’t control the price of lumber, we’re not in control of what it’s going to cost to accept payments with credit cards. There are just far too many variables, and unlike other companies, we don’t want to mislead customers with inaccurate estimates or rip them off with flat fees that will likely end up costing them more. Sure, there are plenty of payment processing companies out there that will make bogus claims about the accuracy of their estimates, or tell you exactly what your bill will be each month by charging an inflated flat fee. But here at Lucid Payments, we’re not going to do that, because it goes against the best interests of business owners and makes our entire industry look like a bunch of crooks. So, if you’re still wondering why it’s impossible to determine the cost of payment processing, then keep reading. Because in this article, we’re going to look at why it’s so difficult to determine the exact cost, explore how other payment processors are exploiting the situation, and explain why our approach is better for business owners like you. Variables That Affect the Cost of Payment Processing As we mentioned above, the cost of payment processing varies, just like everything else. The payment processing industry is a market no different from the lumber market, or the oil and gas market, and there are going to be price fluctuations. There are lots of different variables that affect the cost, including things like the forms of payment a business tends to accept, the kinds of cards its customers use, the amount of risk associated with each transaction, and the markup charged by card issuers and/or payment processing providers. To put things in perspective, let’s consider a hypothetical scenario. Let’s say within one hour, that furniture salesman we mentioned above serves five customers. Three could pay with a Visa, two could pay with a Mastercard, and every single card, regardless of the brand name, could cost a completely different amount. You see, there is a very common misconception that people have when it comes to credit cards, where they believe that a Visa is a Visa, and a Mastercard is a Mastercard, but that’s just not the case. Visa, for instance, offers tons of unique credit cards, with vastly different fees attached to them. At the same time, practically every large corporation now has its own credit card, including Canadian Tire, Home Depot, and Walmart, just to name a few. In addition, many of these cards, along with cards like Air Miles, have points programs that allow cardholders to receive cashback, or other rewards, such as discounts on airline tickets. And in order to pay for the points programs, these cards have significantly higher credit card processing fees. In general, if we’re talking about interchange fees alone, which are the fees charged by the card issuers, credit cards carry a cost that’s anywhere between one and three per cent of the cost of the transaction. Debit cards, on the other hand, tend to have much lower fees, costing anywhere between four and ten cents per transaction on average, plus any applicable assessment/Interac Flash charges. In addition, both debit and credit cards may also charge a small flat fee on top of that percentage. That being said, this doesn’t even take into consideration all of the other fees merchants have to pay for their payment processing, such as fees for payment terminals, monthly statement fees, and any markup charged by card issuers and/or payment processing providers, which also varies. Simultaneously, the nature of each transaction can have a major impact on how much it will cost the merchant. For instance, when a customer pays in person, the interchange fees will be lower, as it’s considered a less risky transaction, but when someone makes a purchase over the phone or online, the interchange fees tend to be higher, as these transactions are considered riskier. Typically, there are also special interchange fees charged on recurring payments, and payments accepted by non-profits and charities, as well, and each card will have slightly different rates for each kind of transaction. It’s also important to point out that nobody can predict the future. New banks, payment processors, and cards are constantly being created, and no one can predict how that will play out in terms of the costs merchants will be expected to incur. If you want to learn more about interchange fees, you should read our article on What You Need to Know About Interchange Rates in Canada. So, as you can see, unless you can predict exactly what kind of cards your customers are going to use, and in what context they’re going to use them, it’s basically impossible to know how much you’re going to pay. This is true, at least when it comes to our pricing model, but many other payment processors like to claim otherwise, and this is the kind of stuff you really need to watch out for. Bogus Claims About the Cost of Payment Processing As you can tell, this stuff can be incredibly convoluted, and unfortunately, many payment processors like to prey on people’s ignorance. For example, a lot of these companies like to make assertions about the accuracy of the estimates they can provide, but, as I said above, this is a totally bogus claim because there’s really no way to determine what the exact cost will be. There are far too many companies out there that are not properly explaining this, and they’re just pumping out inaccurate estimates like there’s no tomorrow. This is very misleading for merchants, and it does a disservice to the payment processing industry as a whole because it shows a lack of honesty and transparency. Now, some companies will tell you exactly what they’re going to charge you for payment processing, in terms of what percentage you’re going to be paying on each transaction. Sounds great, right? But when you really dig into what they’re doing, it’s pretty disingenuous. For instance, Square offers flat-rate pricing for its payment processing, charging 2.65 per cent per card-present transaction, regardless of what kind of card a customer uses or any of these other variables. But the problem with that is there are cards out there that cost less than one per cent per transaction. So, while you might have a better idea of what you’ll be paying per month, for some cards, you could end up paying more than twice what you would without flat-rate pricing. Doesn’t sound like such a great deal anymore, does it? On top of all this, some companies will even play tricks on their customers by doing things like lowering a merchant’s most irrelevant rates, making them think they’re getting a deal, while simultaneously raising the rates on the transactions that are costing them the most money. Frankly, this kind of manipulative, dishonest behaviour is nothing short of disgusting, and here at Lucid Payments, we’ll never mislead our customers like this. On the contrary, we’re working hard to try to expose this stuff, and do what’s in the best interests of business owners. Why Our Approach is Better While the big banks and other large card issuers like to paint everyone with the same brush, here at Lucid Payments, we have a much more personalized, flexible approach, and we try to do everything on a case-by-case basis. That being said, while we can’t tell you exactly what your bill’s going to look like every month, for about 90 per cent of the people who call us, we’re able to find ways to save them money. Now, given the fact that there are dozens of different credit card categories, and literally thousands of different cards, when a customer calls the first thing we like to do is review the last statement they received from their current payment processing provider. We’ll go through the statement with them, take note of what kinds of cards they’re accepting, run the relevant numbers, and try to find ways to save them money based on the nature of the transactions. For example, if a company is primarily doing business online, then we’ll look at how we can lower our markup on those transactions. If they mainly accept debit payments, then we’ll try to reduce our markup on those. Sadly, some customers get a bit perturbed when we ask to look at their statement, and many of them will ask, “Why do you have to look at my statement to know what you’re going to charge me?” Our response to that would go something like, “Well, why do you go to see the doctor in person when you’re sick instead of just calling him, telling him what’s wrong, and demanding he diagnoses you on the spot?” Admittedly, their apprehension is understandable, as no one in this industry is taking the time to do this sort of thing. But when you choose Lucid Payments, we will take the time to dissect your statement, consider your business model, and then create a personalized plan to help you reduce costs where it matters most to your business. Sounds better than what the other guys are offering, doesn’t it? Want to find out how we can help you save money on your payment processing? We go above and beyond to ensure you get the best possible price. Give us a call today to learn more about what we can do for you.