Credit cards · E-Commerce

Cutting down on credit card processing fees / alternatives to Braintree/Stripe?

Greg Lipinski Patent Examiner at USPTO

November 5th, 2016

The standard rate charged by third party credit card processors is 2.9% + $0.30 per transaction. If you process a high enough volume, Braintree and Stripe will negotiate a lower rate for you.

- Do you know how low Braintree and Stripe's rates get?

- What's the reason for the $0.30 per transaction?
- Are there cheaper alternatives you'd recommend and/or ones that charge a flat percentage, instead of that $0.30 per transaction part? I've seen apps that charge vendors 2% for card processing fees, and I can't tell if they negotiated a better deal with the big players, used a smaller player, or are just eating the costs. 

Robert Lee

November 5th, 2016

Basically, there are two kinds of card transactions: Card Present and Card-Not-Present (CNP).  Card Present happens when you physically use your card at a merchant to pay for a transaction whether it's with a credit or debit card. In the older days, merchants actually trained their staff to actually look at the back of the customer's card to compare their signature with the payment slip signature. These days, I don't recall the last time someone ever looked to verify my signature. Even worse, most people just scribble and scrawl a "signature" on those new glass LED screens, often with their finger tips or one of those awkward plastic pens. Nothing that even remotely resembles your actual signature on the back of your card.

CNP transactions originally covered telephone and mail order transactions which meant that the merchant had no physical card present to "verify" your signature. So this justified the higher rates that resulted from higher risk. As the Internet exploded, CNP grew in volume as well, making card fraud an even bigger problem. Visa and Mastercard charge that 25c for an additional "verification" step that would confirm the card and cardholder for the merchant (that would include comparing their shipping address to their registered mailing address; if that Amazon order was being shipped to the same address as the cardholders' mailing address, chances are likely that it's a valid customer).

So then PayPal comes along in the late 90's and built their model on enabling online credit card transactions seamless for online merchants and consumers. But they charged an average of 2.9% per transaction (as opposed to the average 1.5% that physical card-present merchants pay to their processors). And they added an extra 4c to that 25c card verification fee charged by the card companies. Which accounts for other online processors such as Stripe etc charging what they charge too.

Of course, when you're a higher volume retailer such as Amazon, your scale will give you the ability to negotiate much lower fees such as you've cited here. It's all about volume and pennies count. So it may well be that certain online merchant processors may be able to offer lower fees by cherry-picking the industries they approve for their lower rates (high volume, vertical markets, etc.).

Leslie Wolfe Founder - ...

November 5th, 2016

It shouldn't be about the fee ... It ALWAYS should be about service. The problem isn't the fee, it's being able to process your transactions when the volume of sales skyrocket. Classic Example: Paypal will shut you down in a heart beat if all of a sudden you start becoming successful (volume sales). It's a big issue being able to keep a merchant account (or processor) that's not afraid of volume.

Gary Wong Owner, The Spin Group, Inc. and Internet Consultant

November 5th, 2016

If you are an established business with a good history of transactions, you could go to a more standard merchant service and negotiate better rates as well.  I have a non-profit client who got really rock bottom rates from First Data (I'm in no way affiliated).  After 4 years of using them, we looked at switching them to Stripe/Braintree, so we got together with their in-house bookkeeper and calculated what their fees would have been if they used Stripe for the last year.  It turned out that Stripe was more expensive by at least 0.5%. 

But here's the tricky thing - traditional merchant services have different rates for different kinds of cards (debit vs credit, loyalty vs non-loyalty, etc) whereas Stripe/Braintree/Paypal normalizes it all to 2.9% (etc).  So if you're selling large ticket items, you might end up with higher costs because folks tend to pay with loyalty cards to earn points for large ticket items (loyalty cards carry higher fees).

More pros and cons:

Stripe/Braintree has much more features for developers and integrators. So they are much more "value-add."

Depending on how you implement payments, Stripe/Braintree is generally easier to meet PCI compliance.

Hope this helps a bit.

Chris Cardinal Principal at Synapse Studios

November 5th, 2016

Stripe negotiates starting at around $80k/month in volume. 

This typically takes the form of them asking for you to deliver your existing agreement and three months of statements. They then do the math and determine your actual effective rate, and come up with something that beats it. 

We had a client processing ~$100sK/month at what they thought was a 2.5% rate, but when you factored in the intl and biz and other cards, the blended effective rate was closer 2.65%, and Stripe offered 2.45% + 30 cents. 

The 30 cents is in no small part how Stripe makes any revenue at all. There are so many players that get pieces of pie here, and this pads a bottom line on lower-value transactions for them. It's also kind of widely regarded as industry standard at this point, so Stripe doesn't blend their negotiating power across their platform to what could very well be a lower rate for everyone because they want to make money too.

C J Information Architect with eCommerce, Business Transformation & Business Acceleration Expertise

November 7th, 2016

Check with Adyen! Their rates are better than thats of Stripe.