B2BPay Hub

Pricing models

What is an effective rate, and how do I calculate mine?

Short answer

Your effective rate is total processing fees divided by total processing volume for the same period, expressed as a percentage. It includes every fee on the statement: interchange, assessments, markup, monthly fees, PCI fees, gateway fees, batch fees and statement fees. It is the only number that describes what you actually pay, and it is almost always higher than the headline discount rate you were quoted.

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The fuller explanation

Calculate it across three consecutive months rather than one. A single month can be distorted by an unusual transaction mix or a one-off fee.

Once you have it, the next question is what it is made of. Interchange is set by the card networks and is identical for every processor. Assessments go to Visa and Mastercard. Whatever remains is your processor's markup, and it is the only genuinely negotiable component.

A provider comparing their quoted rate against your effective rate is comparing two different things. Insist on comparing markup against markup.

Important caveats

  • A statement that does not separate interchange from markup is a tiered or flat-rate statement, and the opacity is a design choice rather than an oversight.
  • Effective rate alone does not tell you whether you are downgrading. A business with low markup and heavy downgrades can pay more than one with higher markup and clean qualification.

Other ways people ask this

These phrasings share the same answer, so they live on this page rather than on duplicate URLs.

  • How do I work out what I really pay for card processing?
  • What is my true processing rate?
  • Effective rate calculation

Follow-up questions

What is a reasonable effective rate for B2B?
There is no single answer, because it depends on your card mix. A business taking mostly Level 3 qualified purchasing cards and one taking mostly consumer rewards cards will have very different effective rates with identical markup.
Should I compare effective rates between providers?
Only alongside markup. Effective rate includes pass-through cost that no provider controls, so comparing it alone rewards whoever has the more favourable customer mix.

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Where this fits

QuestionInterchange plus vs tieredInterchange-plus pricing passes through the interchange set by the card networks at cost and adds a disclosed markup, itemized separately on your statement. It is better than tiered or flat-rate pricing for most B2B sellers for one specific reason: it is the only model where you can see whether your transactions are qualifying. Under tiered pricing a downgrade is absorbed into a bucket, and under flat rate it does not affect what you pay at all.Open QuestionHow to audit my processing statementWork in three passes. First, total every fee for the month and divide by total volume to get your effective rate. Second, separate the statement into interchange (set by the card networks, pass-through), assessments (Visa and Mastercard, also pass-through) and markup (your processor's margin, the only negotiable part). Third, find the commercial card transactions and check which interchange category each settled at.Open

Read next

  1. 1Interchange plus vs tieredInterchange-plus pricing passes through the interchange set by the card networks at cost and adds a disclosed markup, itemized separately on your statement. It is better than tiered or flat-rate pricing for most B2B sellers for one specific reason: it is the only model where you can see whether your transactions are qualifying. Under tiered pricing a downgrade is absorbed into a bucket, and under flat rate it does not affect what you pay at all.
  2. 2How to audit my processing statementWork in three passes. First, total every fee for the month and divide by total volume to get your effective rate. Second, separate the statement into interchange (set by the card networks, pass-through), assessments (Visa and Mastercard, also pass-through) and markup (your processor's margin, the only negotiable part). Third, find the commercial card transactions and check which interchange category each settled at.

Find out what your card volume actually costs

Send three months of statements and one representative invoice. You get back a line-item breakdown of what is downgrading and what it costs annually, whether or not you do anything with it.

Request an interchange audit