When a processing company signs a contract with a business they generally offer one of several plans, i.e. interchange-plus, flat-rate, and tiered pricing.
With these plans, the business always pays a percentage to use the credit card company. The rates will vary, but that charge is how the company makes its money.
In addition, the credit card processing company, the company that runs the charges and does the leg work, takes a small percentage. This is their profit.
Generally, there is a set rate per charge from the credit card company and the processor can tweak the percentage on top. However, this small percentage is what the processing company uses to be competitive.
It might not seem like a lot to have a .1% difference on a routine charge, but to a business with ten thousand transactions a month, that can be a difference of thousands of dollars.
A thousand dollars might not seem like much to a multi-million dollar processing company, but stacked up across thousands of clients, that fraction of a percent can be massively impactful to the company’s bottom line.
That percentage is the greatest indicator of the margin.
It is acknowledged that .5% profit is a great margin for any processing company and most operate well below that threshold. When compared to the 2-5% a processing company charges per transaction, it is easy to see where the bulk of that profit ends up.
That being said, most credit card processing companies operate below the .5% number, especially when they are doing their best to be competitive.
The margin is routinely manipulated by processing companies by running promotions on different pricing structures that will offer better rates for certain cards while raising the profit margin on others.
They can also play with their margin with rates like interchange-plus where they are guaranteed a set profit per transaction.
At the end of the day, the margin is a fluctuating number that provides credit card processing companies their profit.
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