Processor markup explained: the only part of your fees that is negotiable

Processor markup is everything your processor charges above interchange and card-network fees. Those underlying costs are the same with any processor, so the markup is the only part of your processing bill that really differs from one provider to the next.

Having processor markup explained clearly changes how you shop. Instead of comparing headline rates that bundle different things, you compare the one number each processor actually controls.

Where markup sits in a card payment

Every card sale carries three layers of cost:

Layer	Who gets it	Same at every processor?
Interchange	The bank that issued the card	Yes
Assessments and network fees	Visa, Mastercard, Discover or American Express	Yes
Markup	Your processor	No

If you’ve read our guide on what is interchange, you know the first layer is usually the largest. The markup is usually smaller, but it is the part you can negotiate, the part that can creep up and the part that pays for service and support.

The forms markup takes

Markup rarely shows up as one line. It is often spread across several types of fees:

• Percentage markup: a share of each sale above interchange, often stated in basis points (0.10% equals 10 basis points).
• Per-transaction fee: a fixed amount per sale or per authorization.
• Monthly fees: service, account, statement or platform fees.
• Annual fees: sometimes billed once a year, which makes them easy to miss.
• PCI fees: a compliance program fee, or a non-compliance fee if paperwork isn’t complete.
• Gateway and equipment fees: for online processing or terminal rentals and leases.
• Event fees: chargebacks, retrievals, batch fees and voice authorizations.

Some of these are fair charges for real services. The point is to count all of them, not just the percentage on page one of the quote.

How each pricing model hides or shows the markup

On Interchange-Plus pricing, the markup is a separate line, so you can read it directly. On flat-rate pricing, the markup is whatever is left after the underlying costs, which change with every card. On tiered pricing, the markup is buried in the qualified, mid-qualified and non-qualified rates, and the processor decides which cards go where.

That’s why two quotes can look close and turn out far apart. A tiered quote with a low qualified rate can carry a large markup on rewards and business cards, which may be a big share of your volume.

An example

Here is a hypothetical example with round numbers. It is for illustration only and is not PayZoom pricing. Say a business processes $60,000 a month across 1,500 sales. Its interchange and network fees come to about $1,000. If the processor adds a markup of 0.20% plus $0.10 per sale, that is $120 plus $150, or $270. Add a $25 monthly fee and a $10 statement fee and the true markup is $305 a month. On a statement that shows only a single bundled rate, you would have to work backward to find that number.

Comparing markup between two quotes

To compare two proposals fairly, run both against the same month of your own sales. Take your real volume and your real number of transactions, apply each quote’s percentage and per-transaction markup, then add every monthly, annual and program fee each one lists. Leave interchange and network fees out of the comparison, since they would be the same either way. The quote with the lower total markup for your actual business is the cheaper one, regardless of which headline rate looked lower. If a quote won’t separate markup from interchange, ask for a version that does. If the processor can’t or won’t provide one, that tells you something too.

Markup creep: the slow increase

Many merchant agreements allow the processor to change fees with notice, and the notice is often a line in the messages section of a statement. A small increase in basis points, or a new monthly fee, can go unnoticed for years. Our guide on why processing fees go up covers the common causes.

To protect yourself:

1. Ask for the markup in writing, broken out into percentage, per-transaction and fixed fees.
2. Ask whether the agreement allows the markup to rise, and under what terms.
3. Check your effective rate every month or two.
4. Read the messages section of every statement.
5. Ask about early termination fees before you sign, so leaving is an option if fees change.

A low markup is good. A low markup that can’t increase is better. Ask about both.

What a fair markup pays for

Markup isn’t a dirty word. It pays for underwriting, fraud monitoring, customer support, equipment setup, reporting and someone to call when a terminal goes down on a Saturday. The question isn’t whether a processor earns a margin. It’s whether you can see it, whether it matches the service you get and whether it stays where it was quoted.

When you compare processors, put the full markup next to what each one includes. A slightly higher markup with real support and no early termination fees can be a better deal than a lower one with a call center you can’t reach.

What PayZoom does

PayZoom shows its margin. On Interchange-Plus pricing, interchange and card-network fees pass through at cost and our margin is a separate line, as low as 0.05% + $0.22 per transaction, depending on your setup. For Interchange-Plus merchants, our margin above interchange never increases, and that is in writing. We charge no early termination fees and no non-compliance fees. See the details on our pricing page, or send one statement and our free statement analysis will show you exactly what your current processor keeps.