In the Jane community group, we’ve been having a lot of conversations about payment processing and the rates and fees that come along with that. So, for anyone who isn’t fully integrated with Jane Payments, we thought we’d put together a helpful guide on how payment processing fees work, where they come from, and how you can calculate the rate you’re paying right now!
If you are fully integrated with Jane Payments, you might still find this interesting, but you won’t need to worry about doing any calculations. We’re committed to transparent, pay-per-use pricing with no hidden fees. You can see exactly what your fees will be on our Jane Payments page.
Let’s dive on in!
- 📙 A brief history of payment processing
- 🤔 Understanding payment processing fees
- 🧮 Calculating your current rate
A brief history of payment processing
The payment processing landscape has been shifting rapidly in recent years, and it’s pretty fascinating to watch (at least, we think so 🤓). For a long time, payment processing was almost exclusively offered by banks, or similar large institutions, and was only available in-person via terminal.
In the past 5-10 years, online payment processors have entered the playing field to facilitate our growing appetite for online transactions. These have often been new companies, independent of the institutions mentioned above, and generally only offering online payment processing.
More recently, with the pandemic dramatically increasing our collective comfort with entering our credit card info online, we’ve seen these two types of processors rushing to move into each other’s space: The large institutions are working to offer online payment processing options and, in order to keep up, online payment companies are looking to add in-person terminals to their offerings. This has created a lot of opportunity for folks looking for affordable and convenient payment processing, but also a little bit of unsteady ground as things change quickly.
What does the future look like for payment processing? Who knows! It seems feasible that terminals will become obsolete in favour of online payments, but only time will tell. ⏳
Understanding payment processing fees
One of the questions we get asked a lot is, “Can you match the 1.5% payment processing rate that the big box store with the cheap hot dogs offered me?”
To which we say, “Well, no… but neither will they. (And if they actually are, hang on to that, because they’re losing money on that deal!)”
To understand why we say that, we need to take a look at where payment processing fees come from.
1. Card Present (Terminal) vs. Card-Not-Present (Online) Payment Processing
The first thing that determines your fee will be whether you are processing payments with the card present (via terminal) or the card not present (online). Even if you work with the same payment processor for both, the fees they charge you for each type of payment will differ:
🤝 Card Present (Terminal) Payments:
This is generally where you’ll see that super-low rate being offered.
This fee is generally reflective of the base rate per transaction that the payment processor is going to charge you. It doesn’t usually include a variety of other fees, including things like Interchange, card assessments, PCI compliance (or PCI non-compliance 🙃), terminal rental fees, and minimum processing fees. We’ll talk more about those below!
🖥️ Card-Not-Present (Online) Payments:
These fees are generally higher due to the increased risk of potential fraud associated with receiving payments without the person and their card (and all the security features of a card, like the chip or pin number being entered) in front of you.
Another reason online payments are more expensive is something called a Gateway fee: Anytime a service or software (like Jane) wants to integrate with a payment processor, a Gateway is required to facilitate the transfer of information between both parties. And you better believe that Gateway comes with a toll. 💸
2. Interchange Fees
These are the standardized fees that each processor has to charge for each individual card. Interchange makes up the largest part of all processing fees and is the same for all payment processors. The exact % rate depends on the type of card your client uses:
- The first factor is what type of card is being processed: MasterCard, Visa, American Express? Certain cards are more expensive to process than others (we’re looking at you, AmEx 👀).
- The next factor is just how fancy that card is: Does it provide tons of perks, like lounge passes and backstage access at concerts? Do they offer points towards travel or business expenses? The more perks offered to the customer, the more a business like yours will pay to process it.
Let’s look at the standard interchange fees for a few commonly used credit cards being processed online. These are Canadian cards, so things might look a little different for our friends in other countries.
- Visa Infinite Privilege: 2.40%
- Mastercard World: 2.19%
- Visa Classic / Student card: 1.40%
Let’s take Mastercard World (2.19%) as an example. Whether Stripe, Square, or PayPal processes that card, the bank that issued the card will charge them 2.19%. That’s why we say that anyone offering you a 1.5% per transaction fee is likely adding some hidden fees, or they’re losing money on the deal!
3. Common added or ‘hidden’ fees 🥷
These are fees that are often don’t get included in the % rate that is quoted to you:
- Card Assessment/Brand Fees: These are the fees that are paid back to the credit card company.
- Per transaction charges: Processing certain cards will include a flat fee, in addition to the % rate, for every transaction (ex. AmEx might charge 1.8% + $0.10 per transaction).
- Minimum processing fees: Some processors will charge you a monthly fee if the amount you process that month doesn’t surpass a certain threshold (ex. You pay $10 every month that you don’t process over $8000).
- This can be especially costly for new or part-time practitioners!
- PCI Compliance: this a set of security standards that you might have to pay a premium for. These fees are often charged quarterly or annually, which can make them challenging to account for.
- There are also PCI Non-Compliance fees that you may be charged on top of your PCI Compliance fees. 🥴
- Terminal rental fees: This is another monthly fee you might be paying if you don’t buy your terminal outright, and should be factored into your total cost!
- Contracts: Some processors will lock you into a contract for a certain amount of time, and if you want to switch payment processors you’ll either have to pay to get out of the contract or incur a monthly fee until the contract period is over.
Calculate your current rate
Alright, so now that we’ve talked about all the extra fees that you might be paying, let’s take look at how you can use your payment processing statements to calculate your actual rate. Knowing this number is super helpful because it allows you to more accurately compare your current rate to any processors that you’re considering switching to!
If you have any trouble with this, please don’t hesitate to reach out to us and we’ll be more than happy to help! 💙
Step One: Grab your 3 most recent statements
- If you’re using multiple processors, you can use this method to calculate your rate for each, your combined rate, or both!
Step Two: Open up your favourite spreadsheet software or grab a pen and paper, and set up something like this:
Step Three: Math!
A quick note to 🇨🇦 Canadians accepting Interac Debit: You’ll need to remove your Interac sales and Interac transaction fees ($) from your total before doing your calculation. Just like any other payment processor, Jane only charges a per transaction fee, and not a percentage fee, on Interac transactions.
Let’s get calculating:
- On your statements, find the total amounts deducted by your payment processor and write those down.
- Next, find your total credit card sales for each month and add those to your sheet.
- From here, you can have your spreadsheet software do the math for you or use a calculator to divide the total amount deducted by your payment processor by (➗) your total credit card sales. This will give you a decimal that you can multiply by 100 to find what the payment processing % rate actually was for that month. (See below 👇)
- Once you’ve calculated all 3 months, you can find your average % rate by adding them together and dividing that number by 3.
So, how does your actual monthly rate stack up against the rate you were quoted? Again, if you’re not sure, please don’t hesitate to reach out to us. We’ll do our best to help you understand your rates and fees.
The Jane Team