Debunking Misconceptions About Wholesale Credit Card Processing Rates
By Alexandra Sheehan
It’s nearly impossible to thrive as a small business without accepting credit cards as payment. In 2017, credit cards were used for more than 62% of consumer payments by dollars spent.
And though it’s a necessary cost of doing business, it does come with a cost.
Wholesale credit card processing rates are attractive to merchants looking to cut operating costs and pocket more revenue.
But do they really exist?
Below, we’ll debunk the myths behind wholesale bank credit card processing and answer the question, does anyone really offer wholesale pricing credit card processing?
What is a wholesale credit card processing fee?
The wholesale credit card processing fee goes to credit card-issuing banks in the form of interchange fees and to credit card associations as card association fees. Credit card-issuing banks are the financial institutions or credit unions that issue credit cards to consumers. The credit card associations include Visa, Mastercard, Discover, and American Express, for example. In some cases, the credit card association is also the issuing bank.
Now, let’s bring it back to wholesale: Wholesale processing fees are fixed amounts and non-negotiable. In other words, card issuers and associations require a set processing fee from merchants. Payment processors have no way around these fees.
The way payment processors make money is through markup. Markup is the term for any additional payment processing fees, often paid to your processor, payment gateway, and other merchant services providers involved in the process. These fees are negotiable and vary depending on the vendor.
“The rate of payment per transaction will be divided into three separate entities: You must pay the interchange fee to the bank that issued the card, an assessment fee to the card brand, and markup to the processor company,” says Jared Weitz, CEO, and founder of United Capital Source Inc. “Shop around with all three entities to find the best deal possible with the lowest rates.”
At Payment Depot, for example, merchants pay a monthly membership fee — and that’s it. This means that the additional fees you pay for each transaction are limited to those non-negotiable wholesale fees.
Wholesale credit card processing rates
Each card association has its own wholesale rates. The averages for wholesale credit card companies break down as follows:
- American Express – 2.5% to 3.5%
- Discover – 1.56% to 2.3%
- Mastercard – 1.55% to 2.6%
- Visa – 1.43% to 2.4%
What you really need to pay attention to is the markup. Payment processors can’t change these wholesale processing rates, but they have total control over markup. There are a few fee structures for this:
- Interchange plus: This is typically structured as a flat per-transaction fee plus a percentage of the transaction amount. If you have high-ticket orders, this can take a pretty penny out of your profit.
- Tiered: CardFellow found that tiered pricing is 42% more expensive than interchange plus. That’s because transactions are categorized as qualified, non-qualified, or mid-qualified, meaning that they can inflate the rates for each transaction according to their own categorization.
- Membership: This is the most straightforward fee structure — merchants pay a flat monthly membership fee and only wholesale rates for each transaction on top of that. This is the closest to true wholesale pricing you can get! One Payment Depot merchant, for example, paid just 1.5% for payment processing.
Processing companies might stick you with hidden fees, too. It’s important to know what these are and ask the right questions when finding a processor so you can avoid unexpected costs.
Wholesale credit card processing companies
“A business that accepts and processes a credit card is required to pay an interchange fee, this is a non-negotiable. This fee is paid to the bank that issued the customer’s card and is calculated based on a percentage of the transaction amount,” Weitz says. “This fee alone defines that you’re paying additional service fees, not a wholesale price, for the transaction to be processed.”
So does anyone really offer wholesale pricing for credit card processing? In short, no.
“The bottom line, you want to find the best processing rates available, regardless of if a company claims to be wholesale or not.” – Jared Weitz, United Capital Source Inc.
“For a credit card processing action to be ‘wholesale’ you would need to work directly with Visa or Mastercard, the companies that process the transaction, and this is simply not possible,” says Weitz. “Unless you can work directly with the companies that process transaction, no wholesale pricing for credit card processing is not a real offer.” It’s impossible to find true wholesale payment processing, but you can get pretty close.
Like we mentioned above, membership pricing options from payment processors get merchants the rates closest to wholesale as possible. That’s because you pay a single, flat fee each month and can process payments at no additional charge. Merchants only have to pay the non-negotiable wholesale fees for each individual transaction.
Wholesale credit card processing equipment
When you’ve found a credit card processor that offers competitive pricing — as close to wholesale as you can get — it’s time to get set up with the hardware and software required to administer transactions.
For in-person credit card payments, you’ll need:
- EMV machine or POS system: This is how you can physically scan the credit cards to pay for the purchase. Some have swipers and chip readers.
- Cash till: If you still accept cash as a form of payment, you’ll need a till to hold it securely.
- Customer relationship management (CRM) software: Look for a POS that integrates with CRM software so you can create a customer database.
- RFID scanner: Selling products with barcodes? An RFID scanner will speed up the checkout process.
- Computer screen: Your associates need to see the details of the transaction in progress.
- Receipt printer: Though not necessary (we live in the age of email receipts), you can give customers receipts as instant proof of purchase. They might also need these to return products.
Many companies will offer the option to lease credit card processing equipment. This is attractive because you can add a small fee to your monthly bill — rather than having to swallow a high-cost investment at once. But this actually isn’t the smartest idea in the long run.
Leasing equipment can actually cost you more over time, and you don’t even get to keep it when you’ve finished paying for it.
Moving forward with wholesale credit card processing
While *technically* there is no way to get true wholesale rates for credit card processing, understanding how the process works and what different fees are for can empower to make a business-savvy and informed decision.