Copperly University

Demystifying Credit Card Processing

The Basics

Effective Rate is the Equalizer

Let’s start with the basic goal: Find the processor offering the lowest effective rate for your business.

In the world of credit card processing there are many ways a processor can structure pricing terms. This makes comparing processors incredibly difficult and confusing. Regardless of how you do business, the absolute best way to measure your overall processing costs is to calculate your effective rate, which is frequently much higher than the advertised rate!

Calculating your effective rate is easy. Just take the total dollar amount you pay your credit card processor in a given month and divide by the total card transaction volume (the number of dollars customers pay you by card) in that month. If your processor charges an annual fee, be sure to account for that in your calculation.

For example, if you pay your processor $1,000 in a given month and you pay $120 in annual fees that aren’t already included in that month’s payment, the total you’re paying your processor for that month is $1,010 ($1,000 + $10 for one month’s worth of the annual fees). If your transaction volume for that month is $40,400, then your effective rate is 2.5% (1,010 ÷ 40,400 = 0.025).

Using effective rate to determine the cost of processing allows you to compare processors’ offers regardless of the pricing models they use. We will show you how to evaluate your current processor (if you already accept cards) and how to choose the pricing structure that gets you the lowest effective rate.

Copperly is not a processor. Rather, we aggregate information about processors that we have verified to be willing to offer extremely competitive pricing and fair contract terms in the Copperly Marketplace. 99% of businesses will find significantly lower cost bank card processing services through the Copperly Marketplace. Your task is simple: choose the processor offering your business the lowest effective rate.

The Deeper Dive / Learning More

The Industry Ecosystem

While there’s no need to become an expert at credit card processing in order to make smart decisions for your business, a general understanding is immensely valuable when selecting a processor.

The industry players can be classified into one or more of five basic roles:

  • Card networks

  • Issuers

  • Acquirers

  • Processors (including ISOs and agents)

  • Internet payment gateways

The four major card associations or card networks in the United States are Visa, MasterCard, Discover, and American Express. These companies, mostly owned by issuing banks and acquiring banks, operate networks that enable businesses to accept cards branded with one of the card associations.

An issuing bank or issuer issues credit, debit, and prepaid cards to consumers and businesses that use those cards to pay for goods and services. Issuing banks offer cards bearing the logo of one of the card networks. For example, a card issued by issuer Citi or Bank of America will bear the Visa, MasterCard, or American Express logo. Discover and American Express act as both card networks and issuing banks. Some cards bearing an Amex logo and all cards bearing a Discover logo are issued by Amex or Discover respectively.

An acquiring bank or acquirer maintains merchant accounts for each business serviced by processors working with the acquiring bank. Acquiring banks generally assume the risks associated with accepting card payments. For example, if a business accepts a card from a customer, but then doesn’t provide the product or service for which it was paid and is unable to fund a resulting chargeback initiated by the customer, the acquiring bank is responsible for paying the issuer of the card who then pays the customer. Chase Paymentech, Vantiv, and Wells Fargo are examples of major acquirers. Confusingly, Wells Fargo and Chase are also card issuers.

Processor can mean many things. At Copperly, we generally refer to the business that sells and supports card processing services (merchant services) as your processor. In reality, this may be an independent sales office (ISO), one of its agents, a larger processor, or it could even be an acquiring bank, but it doesn’t really matter. What matters is that this is the company that 1) you work with to set up your merchant account by filling out an application; 2) charges you to accept cards; and 3) provides billing and technical support.

An Internet payment gateway enables a business to accept card payments online. Your website could include e-commerce technology that sends a customer’s card information to a payment gateway, which then forwards that information to the processor or acquiring bank to process the transaction. Alternatively, you might link to a payment gateway’s website from your website or from emails you send to customers so that your customers can provide their card information directly to the payment gateway. There are many good Internet payment gateway options., PayPal Payflow, and 2Checkout are some of the most well-known. Payment gateways typically charge a monthly fee (which may include a fixed number of transactions for that month) plus a fixed fee for each additional transaction. For example: $10/month for the first 250 transactions + $0.10/transaction thereafter. This in addition to the processing costs you pay your processor (not all businesses need to accept payments online). You can usually secure the lowest payment gateway pricing by signing up through your processor. Just make sure you understand what that pricing is.

Confused? We’re happy to help! Get in touch.

Fees, Dues, and Assessments - a.k.a. Where did my money go?

A business pays its processor to be able to accept cards from its customers. These fees are split among the various parties involved in the transaction: the card association, the issuing bank, the acquiring bank, and the processor (including its sales agents).

The costs a processor incurs providing your business with card acceptance services can be broken down into interchange rates, dues and assessments, and processor-specific costs such as sales and support.

A processor must charge you at least the sum of these three components (so that it isn’t losing money) plus some markup so that it makes a profit.

The interchange rates and the dues and assessments for your business are set by the card associations and are the same regardless of the processor. They are the non-negotiable components of the fees you pay your processor. Conversely, processor-specific costs and markup vary from processor to processor. This is where we can focus our attention to negotiate the lowest possible overall cost. To make things simpler, we refer to processor-specific costs and markup together as markup.

Interchange Rates

Card associations set interchange rates (sometimes called discount rates), which processors pay to the issuers of the cards used at the businesses for which the processors provide merchant services. These non-negotiable fees consist of a percentage of the volume processed in a given transaction plus a flat fee for the transaction. The interchange rate category that applies to a given transaction depends on a number of factors that include the card association, the card type (e.g. debit, credit, or premium rewards credit), the manner in which the card is presented (e.g. swiped in person or entered online), and the type of business accepting the card (e.g. restaurant, hair salon, or e-commerce site). There are hundreds of interchange categories that are periodically published by Visa and MasterCard. Discover and American Express don’t publish their interchange rates publicly, but nonetheless we use their rates when calculating quotes in the Copperly Marketplace. Besides the four major card associations, there are also a number of PIN debit networks that set interchange rates for transactions where a cardholder enters a PIN number for his/her debit or prepaid card. The bulk of your card acceptance costs come from interchange rates.

Dues and Assessments

In addition to setting interchange rates, the card associations also set dues and assessments, which processors pay to the card associations whose logos appear on the cards used at the businesses for which the processors provide merchants services. Like interchange rates, these non-negotiable fees typically consist of a percentage component and/or a per-transaction component, which are quite small relative to the interchange rates.


All amounts that a processor charges a business above the interchange rates and the dues and assessments are considered the processor’s markup. This is the only pricing component that varies among processors and thus is subject to negotiation. A processor’s markup covers the processor’s operating costs (sales, support, etc.) and affords the processor a profit. The processor you work with likely splits its markup with an acquiring bank (unless it’s an acquirer itself) and sales agents. In order to find the processor that costs the least, you need to find the processor offering the lowest markup. The Copperly Marketplace enables you to easily compare processors’ markups by examining their effective rates. Get started now.

The Pricing Models - Why does this matter and which one is best?

The pricing model you choose will have a greater impact on your effective rate than the advertised rate alone. Let’s explore the models.

Flat Rate Pricing

You’ve undoubtedly encountered processors offering flat rate pricing, which offers businesses a simple single rate for all transactions. Sometimes there are additional fees for things like accepting cards issued outside the U.S., but for the most part the processor bundles the interchange rates, dues and assessments, and processor markup into one rate, which typically has a percentage component, a per-transaction component, and sometimes a monthly or annual fee. 2.75% + $0.30 is an example of a common flat rate pricing structure. Simplicity is good, right? Rarely when it comes to bank card processing. As an extreme yet common example, by federal regulation many debit cards have an interchange rate of 0.05% + $0.22. Even after accounting for dues and assessments, a processor charging 2.75% is keeping well over 2.6% in markup at your expense! We do not allow flat rate pricing in the Copperly Marketplace because it’s generally a rip off.

Tiered Pricing

Tiered or bucketed pricing began as a relatively simple but deceptive way for processors to explain rates to merchants, by grouping the hundreds of business categories and credit card types into just a few tiers. However, as with flat rate pricing, processors offering tiered pricing get to bank the difference between the rates you pay and interchange rates, which means large profits for the processor and a higher effective rate for you. To make matters worse, it’s very difficult to compare tiered offers from different processors because each processor defines their tiers differently. As with flat rate pricing, we do not allow tiered pricing in the Copperly Marketplace.

Billback Pricing

The worst of all worlds, billback, enhanced billback, enhanced recover reduced, or blended pricing is a deceptive pricing model that uses flat rate pricing as the minimum you pay then bills you extra to accept cards associated with higher interchange rates.

It’s particularly difficult to decipher how much you pay for billback pricing because the difference between interchange and the flat rate you were quoted appears on the following month’s statement from that containing the original charges. As one of the most deceptive and confusing pricing models in the industry we forbid processors from offering billback pricing in the Copperly Marketplace. Find processors with fair and transparent pricing models.

Pass-Through Interchange Plus Pricing

Commonly referred to as interchange plus or cost plus pricing, the pass-through pricing model is one in which the variable interchange rates and dues and assessments are passed through directly to you, the merchant, in addition to the markup, which is agreed in advance. The most important components of markup consist of a monthly or annual fee, a percentage of volume processed, and a per-transaction fee. There are also other less commonly encountered markup fees, which we ensure are fully disclosed in all Copperly Marketplace quotes.

While it doesn’t offer the simplicity of the flat-rate model, interchange plus pricing is the most transparent pricing model because you pay the same underlying mandatory costs that all processors incur plus a small fixed markup. When comparing interchange plus quotes, you can simply compare processors’ markup to find the lowest cost option.

Let’s look at an example. A processor could offer your business markup over interchange of 0.12% (referred to in the industry as 12 basis points) above interchange, 10 cents per transaction, and $10 per month.

The Copperly Marketplace allows you to assess the most competitive quotes for you and choose one in your own time from the comfort of your home or office without pushy salespeople. We calculate the effective rates of the quotes you receive to make comparing quotes easy.

Get started now!

Comparing Processors

Let’s reiterate the basic goal: Find the processor offering the lowest effective rate for your business.

As you’ve learned, the processor offering the lowest effective rate is the processor that will cost you the least. For nearly all businesses, that processor is also the processor offering the interchange plus pricing model with the lowest markup.

Copperly’s proprietary price comparison tool was created to allow you to instantly determine which processor is offering the lowest effective rate for your business. The Copperly Marketplace pits processors against each other, competing for your business by offering extremely low markups and thus extremely low effective rates.

What does this mean for you? It means the best deals possible are offered the very first time you request quotes and thus no additional negotiation is needed! Simply compare the effective rates or the corresponding overall costs of each processor shown on the quotes page and choose the lowest priced processor.

For a deeper dive into the components that comprise quotes, simply click “Show Details” from your Copperly Marketplace quote page. There you’ll find the breakdown into interchange rates, dues, assessments, and processor markup along with a fully-disclosed list of the fees that comprise the markup. Get instant quotes in the Copperly Marketplace. No processor will be able to contact you until you give the ok.