What’s a Good Effective Rate for Credit Card Processing in 2023?

Learning to calculate your effective rate can help your business avoid overpaying in fees. Our business expert explains everything you need to know.

With all the expenses that come with running a business, it’s easy to overlook credit card processing, which can be a money drain. You may often find yourself paying much higher rates than you originally expected. 

To understand how much credit card processing will really cost you, it’s crucial to calculate your effective rate. This allows you to understand exactly how much you’re sending your payment processor each month. By determining that, you’ll be able to see if there are ways to decrease the amount or if it’s time to switch to a better payment service provider. 

In my experience, new business owners often choose the first credit card processor that seems like a good deal. This can result in higher fees than expected and other headaches down the line. To help you avoid that, I’ll explain exactly how to calculate your effective rate and share some expert tips on choosing a credit card processor. 


What Is an Effective Rate and How Is It Calculated?

An effective rate for credit card processing is the total amount of fees – both processing fees and other fees – that you’ll pay as a percentage of your total credit card sales. It’s a helpful tool for understanding how your credit card fees may vary at different times, but can also be useful in determining if you’re paying too much. 

Credit card processors take a cut of every credit card transaction made for your business, either as a flat-fee or a percentage. However, they may also charge additional fees such as monthly user charges, cross-border fees, and processor markups, among many others that can surprise you at the end of each month. 

This means your effective rate may be significantly higher than the advertised rate. To get your own effective rate, you can look at any statement from your credit card processor, which should list out all fees, and the total sales amount processed during the statement period. 

For example, say that in one month you made $1000 of credit card sales. The credit card processing company takes 2% in processing fees – or $20. Except that 2% doesn’t include the monthly user charge, or the card association fee.

Let’s say that all of those additional fees add up to another $20 for the month, in addition to the $20 from processing. To get your effective rate, you then take the total fees from processing and divide it by the monthly sales.

So, in this case $40 (the total of all fees) / $1000 (the total sales processed) = 0.04 or a 4% effective rate. It’s a simple and effective calculation to help you understand the bigger financial picture. 

What Is a Good Effective Rate for Credit Card Processing? 

While there is no set standard for good effective rates for credit card processing, around 2-3.5% is ideal

Keep in mind that some businesses may have slightly higher rates. This is because there are several factors that can affect your effective rate, as credit card processors don’t treat all businesses equally when it comes to imposing fees on merchants. 

One factor that may lead to a higher effective rate is if your business is in a high-risk industry. This is because banks and companies must protect themselves from potential losses and pass these fees back onto you, as the merchant. 

High-risk industries can include any type of business that is seen as financially unstable or at risk of failure. This could include businesses that are located overseas, businesses that have high chargeback rates, or even businesses that have very high average individual sales. 

A second factor is interchange rates, which are set by banks and vary depending on the card type and the issuing bank. The types of transactions can also affect interchange rates. Card-present transactions, like in brick-and-mortar stores, generally have lower fees than card-not-present transactions, like online purchases.This is because card-not-present transactions have higher chances of fraud. 

A third factor is the processing company itself. There are many different payment processors to choose from, with many different specialities and fees. 

What may be considered “high-risk” for one service provider may not be for another. Some companies may specialize in working with certain industries, while others serve a wide array of businesses. The most important thing is to find a payment service provider that is upfront and transparent about its rates. Click here to see what Pay.com has to offer.

What Else Should You Look For in a Credit Card Processor? 

Understanding your effective rate is important for ensuring you’re getting a good deal, but it’s only one aspect of choosing a credit card processor for your business. There are several other factors to consider when choosing a credit card processor. 

Full Transparency Regarding Rates and Fees

Full transparency is crucial for credit card processing. Companies that tell you upfront what you’ll be charged allow you to better control and prepare for these necessary expenses. Getting hit with hidden fees or changing fees that aren’t properly communicated can sour your expectations of a processing company and leave you with less money in your account. 

Quick and Easy Onboarding and Setup

Another important aspect is ease of use. When you first set up with a credit card processor, trudging through long and confusing paperwork is a hassle that can add undue stress. Instead, opt for a company that offers a simple onboarding process with clear, to-the-point questions that can get you on your way to accepting payments quickly. 

Option to Accept Additional Payment Types

With ever-increasing ways to pay for goods and services, accepting multiple payment types will appeal to the broadest customer base. Some credit card processors recognize this as important and offer an array of payments and update these as new options enter the market.

Pay.com is a new way for businesses to approach payment processing. From credit cards to digital wallets such as Google Pay, Pay.com has plenty of payment options to fit your business needs, and with a quick and painless onboarding process, you’ll be on your way in no time. 

Security and PCI Compliance

One of the most crucial factors to look for with credit card processors is security and PCI (payment card industry) compliance. Your customers trust you with their financial information, so ensuring it is safe and secure needs to be a top priority. 

24/7 Customer Service

No matter how organized or prepared you are, things will no doubt go wrong from time to time. When it comes to credit card payments, you want a processor that is easily available to answer your questions and resolve issues before they become major. Having 24/7 customer service ensures you’ll never have to wait for a resolution, even on weekends or overnight. 

The Bottom Line: Make Sure You're Not Overpaying for Credit Card Processing 

With so many other pressing matters you have to deal with as a business owner, you don’t want to have to worry about whether or not you’re overpaying for credit card processing. To understand the true cost involved, calculate your effective rate early and often.

If you’re just starting a business and looking for a credit card processor, or you’ve realized you’ve been overpaying and want to switch, be sure to make an informed decision. You want a company that has an easy-to-use system with clear rates, secure payments, and robust customer support. 

Pay.com offers all that and more. It’s a quick, easy, and convenient way for your business to accept credit cards and other payment methods. When you open an account with Pay.com, you’ll be able to keep track of all your fees through the dashboard, so you’ll never have to worry about unpleasant surprises at the end of the month. 


How do you calculate your effective rate for credit card processing?

It’s simple to calculate your effective rate for credit card processing. First, add up all the fees your credit card processor is charging. Then divide them by the total amount of credit card sales processed for that period. That’s your effective rate.

How much do banks charge merchants for credit card transactions?

The amount charged depends on the issuing bank and the type of card (rewards, benefits, purchase protections) but generally ranges between 1.5-3.5% per transaction. These fees may also increase in higher-risk situations like card-not-present transactions.

How can I lower my rates for payment processing?

To lower your payment processing rate, look for payment processors that are transparent in their pricing and find a pricing model that works best for your business – whether it’s a flat fee, percentage-based, or interchange plus.

How can I accept credit card payments on my website?

To accept credit card payments, you’ll need to set up a merchant account or work with a payment service provider to ensure secure transactions for your customers.  Pay.com is a payment service provider that offers convenience and simplicity to small businesses. You can easily accept credit card payments, along with plenty of other payment methods, on your website. 

Meet the author
Ashley Hague
Ashley Hague is a B2B writer based in New Zealand. Specializing in fintech, SaaS, and sustainability in business, she helps businesses achieve their goals. When not working, she can be found rock climbing or delving into a historical biography.

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