How Payment Processing Fees Work in Canada

The single rate quoted to a merchant is almost never a single cost. It is a stack of three layers, and understanding which is which explains most of the confusion on a statement.

• Interchange is set by the card networks and paid to the bank that issued the customer’s card. It varies by card type, by whether the card was present, and by the merchant category. No processor sets it, and no processor can discount it.
• Network fees, sometimes called assessments, are charged by the card networks themselves for using their rails. They are also outside your provider’s control.
• The provider markup is what your payment provider adds on top. This is the number that actually differs between providers, and it is the one worth comparing.

Because the first two layers are largely fixed, the useful comparison between two providers is not their advertised rate. It is how much markup they add for your particular mix of cards and volumes.

Canadian processors generally present pricing in one of three ways. The model matters more than the headline number, because it determines how much you can verify.

• Interchange-plus: the true interchange and network fees are passed through at cost, and the provider adds a fixed markup, either a percentage, a per-transaction amount, or both. Every line on the statement can be traced, which is why it is the most transparent model and the one Tap2Pay uses.
• Flat rate: one blended percentage for every card. Simpler to understand, but you pay the same rate for a basic debit card as for a premium rewards card, which means you usually overpay on the cheaper transactions.
• Tiered or bundled: cards are sorted into categories such as qualified, mid-qualified and non-qualified, each with its own rate. The categories are defined by the processor, not by the networks, which makes it difficult to predict what a transaction will cost or to check it afterwards.

If you are comparing offers, ask each provider to quote in interchange-plus. A provider that will not show interchange separately is telling you something.

Two merchants on identical contracts can pay very different percentages, because the cost depends on what their customers actually hand over.

• Card type. Rewards, premium and commercial cards carry higher interchange than a basic consumer card, and the difference lands on your statement.
• Debit vs credit. In Canada, Interac debit transactions generally cost less to accept than credit card transactions, so a debit-heavy business often pays a lower overall rate.
• Card present or not. In-person chip and tap payments cost less than keyed-in, phone or online payments, because the risk and the verification differ.
• Average ticket size. On a low average ticket, per-transaction fees make up a larger share of the total, which raises your effective rate.
• Monthly volume. Higher volume gives a provider more room to reduce its markup.
• Business category and chargeback history. Higher-risk categories and repeated chargebacks are priced for that risk.

This is why a quoted rate is not a promise about your monthly bill, and why a statement review is the only way to compare honestly.

The number that matters is your effective rate: total fees divided by total card sales for the same period. It is the one figure that accounts for your card mix, your volumes and every extra fee.

1. 1Find total fees charged for the month, including every line item, not just the processing percentages.
2. 2Find total card sales for the same month.
3. 3Divide the fees by the sales. The result is your effective rate.
4. 4Compare it to the rate you were quoted when you signed up. A gap is the signal to ask why.
5. 5Repeat for three consecutive months, because a single month can be unrepresentative.

While you are there, look for the fees that sit outside processing entirely: statement fees, monthly account fees, minimum volume charges, PCI compliance fees, batch or gateway fees. These are the easiest to lose track of because they do not scale with sales.

• Move to itemized interchange-plus pricing, so the markup you are paying is visible instead of blended into one rate.
• Understand your card mix. If premium and commercial cards are common among your customers, your effective rate will reflect it, and a provider quoting a single low blended rate is likely to adjust later.
• Review how payments are taken. Keyed-in and phone orders generally cost more than tap and chip payments, so a virtual terminal used for counter sales may be costing more than it should.
• Keep chargebacks low by using clear descriptors and answering disputes with documentation quickly.
• Review fixed monthly fees once a year. A minimum volume charge you no longer hit, or a compliance fee that was never explained, is recoverable money.
• Re-quote periodically. Pricing that was competitive two years ago often is not today, and with no long-term contract there is nothing stopping you from checking.

There is no single trick that lowers every merchant’s costs. The reliable approach is to know your effective rate, know which layer of it you can influence, and re-check it against the market.

• Is the pricing interchange-plus, and will the rate be confirmed in writing?
• Are there monthly minimums, statement fees, PCI fees or batch fees?
• What is the contract length, and what is the notice period or termination cost?
• How and when are funds deposited, and is any reserve held at the start?
• Who do I contact when a terminal fails, and in which language can they answer?
• Can I see a side-by-side comparison against my own statement rather than a generic rate sheet?

A provider that answers these clearly, in writing, is easier to hold to its word. Send a recent statement to Tap2Pay and the comparison is done against your own numbers.