Card Processing Terms Explained

The payments industry runs on jargon, and some of it's used specifically to keep you from comparing deals. You don't need to become an expert. You just need to recognize a handful of terms when they show up on a statement or in a pitch. Here they are, in plain language.

Interchange. The biggest part of your fee, set by the card networks and paid to your customer's bank. Nobody can lower it for you. It's the same for every processor.

Assessment. A small fee that goes to Visa, Mastercard, and the like. Also fixed for everyone.

Markup. What your processor adds on top of interchange and assessments. This is the only part that's actually negotiable, and the only part that differs between providers.

Effective rate. Your real, all-in cost: total fees divided by total sales for the month. The single most useful number for comparing any two processors. If your fees were $300 on $10,000 in sales, your effective rate is 3%.

Interchange-plus. A pricing model that shows interchange and the markup separately, so you can see exactly what you're paying for. Usually the most transparent and, for established businesses, the cheapest.

Flat-rate. One simple percentage for every transaction. Predictable and easy, but you often overpay on cheap-to-process cards.

Tiered pricing. An older model that sorts transactions into "qualified," "mid-qualified," and "non-qualified" buckets. It sounds organized but it's the least transparent model, because the processor decides what lands in the expensive buckets. Be cautious with it.

Card-present vs card-not-present. Whether the card was physically tapped or swiped (cheaper, lower fraud risk) or keyed in or entered online (more expensive). This is why online and phone payments cost a little more.

Chargeback. When a customer disputes a charge and the money is pulled back from you. A few are normal. A pattern of them can put your account at risk, so it's worth understanding how your processor handles them.

Batch. The daily bundle of transactions your terminal sends for deposit. "Batching out" is closing the day's sales.

PCI compliance. The security standard for handling card data. For most small businesses that don't store card numbers, it's a short annual questionnaire, not a project.

Merchant account. The account that lets your business accept cards and receive the funds. Where your money lands before it moves to your bank.

Gateway. The tech that securely connects your website or terminal to the payment networks. Mostly relevant for online and keyed-in payments.

Once these stop being a fog, a sales pitch gets a lot easier to see through, and a statement stops hiding anything from you.

If any line on your current statement doesn't make sense, send it over. We'll walk you through the whole thing, for free.