This section is not applicable to Referral Partners.
Understanding the Fees (CC)
Several entities are involved to facilitate a payment card transaction. Each of these entities charges a fee for the service, some fees are fixed and other are variable. In understanding the fees it is important to understand the players involved.
- Card Associations (AKA the Card Brands) – Visa, MasterCard, Discover, and American Express. The card associations establish rules/regulations governing participation in electronic payments. They promote products to merchants and consumers, providing the network to facilitate transactions between acquirers and card issuers. (The operator)
- Issuing Bank – The financial institution providing the credit or debit card to the consumer (cardholder). (The customer’s phone number)
- Acquiring Bank/Acquirer – Acts as communication vehicle between the merchant and the Association. The Acquirer may hold the agreement with the merchant. (The service provider, think Verizon)
- Third-Party Agents/Reseller – entity that manages processing relationship between acquirer and merchant. Typically providing sales, support, underwriting, risk monitoring, etc. (The Verizon Store)
Each organization involved in this ecosystem charges a fee or “Cost” for its role in the transaction process and it is up to the Agent/Reseller to establish these fees to the merchant, in addition to any “Mark-Up” that will go towards the Reseller’s revenue.
From a higher level, there are two fee categories, “Cost” and “Mark-up”. In payment processing the “Cost” is consistent regardless the combination of organizations a merchant uses, leveling the playing field for Agents/Resellers of all sizes to compete with larger banks on price. In other words, cost is the same for Forte as it is for any other bank competing in this industry.
The “Cost” is made up of the following components:
- Interchange – A rate of exchange assessed by the Card Issuer. Interchange makes up a majority of the costs involved in credit card acceptance.
- Dues and Assessments – A cost levied by the Card Associations for promoting card products, advancing the payments systems, as well as establishing and governing rules and regulations for all parties involved.
- Network Fees – Network fees belong to the Acquiring Bank and their sponsor banks where applicable. Unlike the aforementioned cost components, there is some slight variation in network fees as there are a variety of different networks and fees may be negotiable by network. Typically consisting of a small per transaction fee and/or a 2-3 basis point discount rate, these fees usually make up the smallest portion of overall cost. While this could almost be equally considered a Mark-Up, it is a rather negligible fee and is not negotiable on the merchant level.
Anything in addition to “Cost” is referred to as “Mark-Up”. This is what generates the revenue that Forte and the Partner share.
Mark-Up consists of any fees charged in addition to “Cost”. The Partner is responsible for dictating the mark-up, but bear in mind, any negative fees will be billed to the partner. Forte, like its competitors, offers several “Rate Structures”, a pricing plan, as ways to build mark-up into the “Cost” that all merchants are obligated to.
How do you determine which pricing is right for your merchants? It would be a good idea to understand the unique needs of your market. If you are not sure, take a look at what your direct competitors are doing and engage your Account Manager with that information. Below we have detailed pricing models available with Forte.
Interchange Plus – Also known as “Cost-Plus”, this is one of the most popular structures among savvy merchants and agents. It works exactly as it sounds. Whatever the “Cost” is, interchange, dues, and assessments, is passed onto the merchant directly at the current market cost. In addition to the “Cost”, the partner will add in a “Discount Rate” (a percentage fee on the total sales volume) and a transaction fee, hence the “Plus”. The added fees or “Mark-Up” will remain consistent regardless of the type of card and/or method used for running the transaction.
- Detailed and transparent, statement, allows merchants to understand their card spread and potentially reasons for downgrades (i.e. EIRF, Standard, Data Levels)
- Can be as profitable as any structure, but generally is not due to larger mark-up being very transparent
- Can be easily adjusted, Highly Scalable, without risk of profits being in the red/negative commissions
- Extremely minimal risk of partner absorbing fees long as discount fee is above 0.08% and $0.08/transaction.
- Preferred by knowledgeable merchants, especially those engaged in a Business to Business environment.
- Highly Transparent, making it easy for merchants to see margin and for competitors to compare and reduce given it’s easy scalability
- May be difficult to communicate to Merchant, many possible rates
Tiered Rate – (No Longer Supported by Forte’s Vantiv Platform - will be supported on all platforms by end of Q3 2018)
- Easier to communicate than interchange plus in some cases
- Allows ISO to advertise a “Rate as low as” the lowest tier
- Somewhat scalable, changing discount or surcharge is possible
- Global offers Tiered and Interchange plus
- Outdated, merchants are often educated to stay away
- Partner assumes risk of absorbing fees if not priced high enough
- No clear understanding of why a card has downgraded, not enough detail on statement
- Not effective for B2B merchants, as Corp/Business cards will typically receive highest surcharges
- Not supported on our Vantiv Platform
Flat-Rate – Simple, just one price for all credit card transactions. (note: AMEX Discount Rate may be priced independently of Visa/MC/Discover)
- Generally most profitable discount rate
- Easy to communicate and understand fee
- Easy to understand bill
- If merchant is passing on a fee, it takes out any guess work
- Often preferred by less knowledgeable merchants with low processing volume. Occasionally also by those willing to pay higher fees for the sake of simplicity.
- Can be expensive, leaving it to be unattractive for merchants with significant volume
- Partner assumes risk of absorbing fees if not priced high enough (recommend over 2.65% Card-Present, 3.10% Card-Not-Present)
- B2B merchants tend to carry higher interchange cost, reducing mark-up built into rate.
- Offered only on Vantiv (will be available on other platforms end of Q3 2018)
- Not scalable. Lowering fees often means changing merchant to interchange-plus as it is the only other offering on Vantiv.