With companies like Monex Group offering merchants discount rates in the 1.59% range, I find that my team spends a lot of time consulting with merchants and helping them understand that a rate like that is misleading.
Today we came across a situation where a competitor approached one of our prospects with an offered rate of 1.44%.
For all card types, that rate it is well below cost! The acquirer is flat out misleading the merchant. What follows is an explanation of why 1.44% is not possible.
There are 6 major processors in Canada that buy direct from the group that manages Visa and MasterCard rates, Interchange.
They all pay the same Interchange rate for a domestic, swiped, Visa or MasterCard. That rate is 1.54%.
There are also assessments levied on top of that rate which add an additional 0.06% (0.063% for MC) so the raw cost for a domestic swiped Visa is 1.54% + 0.06% = 1.60%. Everyone Canadian direct acquirer pays this rate.
Based on the nature of the merchant in questions transactions - ecommerce / telephone order - very few (2%) of their transactions qualify for the domestic, swiped, Visa rate. That means that our cost calculation now involves another factor, non-qualified Interchange adjustments, also known as billback. Our cost now looks like this:
1.54% + 0.06% + non-qual adjustment by card type. I’ve attached the grid below that breaks out the processors adjustment cost by card type.
| Card Type | MasterCard | Visa |
| Electronic Domestic Cards | 0.00% | 0.00% |
| Standard Domestic Cards | 0.13% | 0.11% |
| Electronic Visa Infinite / MC High Spend | 0.41% | 0.20% |
| Standard Visa Infinite / MC High Spend | 0.54% | 0.31% |
| Electronic Purchase/Corporate Cards | 0.41% | 0.36% |
| Keyed Purchase/Corporate Cards | 0.54% | 0.46% |
| High Spend Premium MC | 0.66% |
Let me show you an example based on the grid above:
You take a High Spend MasterCard card over the phone and key it into your terminal. The processors raw cost is:
1.54% + 0.063% + 0.66% = 2.26%
Anyone that is offering 1.44%, which is 0.16% below Interchange on a domestic swiped Visa, has to be making huge adjustments on the non-qualification fees. In the case above they would be losing 0.70% on that transaction, not including their telecom and support costs.
Some processors, like Global Payments, have adjustments up to 2.4% depending on card type to claw back low margin on the domestic swiped transactions. What that means in this case is something like this :
1.44% + 0.06% + 2.4% = 3.9%
How do you like that 1.44% now!
Bottom line: a number of Canadian credit card processors are dangling a low base rate, knowing that 30-90% of the merchants transactions won’t qualify for the offered rate. It’s deceiving and low handed. Make sure you understand the major components of credit card processing
If it sounds too good to be true, it probably is!
