Flutterby™! : True Cost of Credit

Next unread comment / Catchup all unread comments User Account Info | Logout | XML/Pilot/etc versions | Long version (with comments) | Weblog archives | Site Map | | Browse Topics

True Cost of Credit

2009-01-29 16:22:15.728781+00 by Dan Lyke 4 comments

True Cost of Credit. Enter the first six digits of your credit card, find out how much it costs the merchant to process that card.

[ related topics: Economics ]

comments in ascending chronological order (reverse):

#Comment Re: made: 2009-01-29 19:34:41.623742+00 by: JT

#Comment Re: made: 2009-01-30 09:30:38.712273+00 by: meuon

I didn't have a problem putting in the first 6 digits. Although actually the first 4 would probably be enough. The rates a merchant pay are -not- usually as variable as shown, but they can be if they have a crappy deal. Each merchant has a agreement that specifies his rate, and where 2-2.5% was common for small merchants a few years ago, 2% is now high. For example: Mastercard and Visa both aggressively pursue the utility business, with special 75 cent flat rates (plus some processing fees) to be just at $1 total... Considering the average utility bill is around $100, this works out to 1%. Pay a $250 bill it's under 1/2 a percent. My personal merchant account, has an effective rate (rates + fees) of close to 10%, because I do a transaction about every 3 months.

I do try to not use credit cards for lunch or under $20, and often have about $100 cash on me just so that I don't. I try to tip in cash (unless it's all business related), and I try hard to use cash at smaller businesses (and often get a little discount), even at Nancy's favorite jewelry store..

But nothing as as bad as American Express from the merchants point of view..

#Comment Re: made: 2009-01-30 13:38:53.133868+00 by: Dan Lyke

Huh. I'll have to try my AmEx in it. Of course the only reason we've got one is that it more than pays for itself at CostCo.

#Comment Re: made: 2009-02-05 14:18:53.223296+00 by: sean harper

Hi, thanks for the mention, I'm the one of the guys who wrote that program, its nice to see that it is provoking conversations.

@meuon - entering the first 4 lets one figure out what bank issued the card but not which program the card was issued under. For example, chase issues debit cards and credit cards (which have different costs) that have the first 4 digitrs.

Also, the rates merchants pay *usually* are variable, the most common way processing contracts are structured is where a negotiated rate is paid for "qualified" transactions and "unqualified" (what constitutes unqualified is essentially up to your processor and the agreement you negotiated) transactions pay that rate PLUS an additional charge (which is usually presented at the bottom of the bill to avoid being noticed).

Unfortunately, for those of us who have to accept credit cards, processors hide a lot of their profit in those "downgrades". For example, Costco sells a credit card processing service to its customers (http://www.elavon.com/acquiring/costco/) that is advertised as 1.64% for swiped transactions but actually ends up being around 2.15% after downgrades (http://transfs.com/blog/2009/02/01/costco-merchant-account/), and that is actually an ok deal, there are much more egregious examples.

Most merchants get the best deal by negotiating an interchange plus contract (where every rate is variable, but the processors markup is fixed) since it makes it harder for processors to sneak in extra fees. There's a really funny article in one of the trade magazines for credit card processors (http://www.transactionworld.co...2006/September/commonGround1.asp) explaining how they should avoid doing interchange plus pricing because it results in too good a deal for the customer.