What Is a Buy Rate in Credit Card Processing?

A “buy rate” in credit card processing is the wholesale cost payment processors incur from card networks and issuing banks for each transaction. This baseline charge is the non-negotiable portion of transaction fees. Understanding this cost helps businesses accurately assess their payment processing expenses before any additional markups or service charges are applied.

Components of a Buy Rate

The buy rate is composed of two distinct elements: interchange fees and assessment fees. These fees are set by external entities, making them non-negotiable for payment processors and merchants. They represent the core charges for facilitating a credit card transaction.

Interchange fees constitute the largest portion of the buy rate, typically 70% to 90% of total card processing fees. These fees are paid by the acquiring bank to the issuing bank. Interchange fees compensate the issuing bank for providing and maintaining the payment card, managing accounts, and handling credit risk. They also fund cardholder rewards programs and cover fraud prevention measures.

Assessment fees, also known as card brand or network fees, are paid directly to credit card networks like Visa, Mastercard, Discover, and American Express. These fees cover the operational costs of the card networks, including infrastructure for secure payment systems. Unlike interchange fees, assessment fees are collected by card brands for network use and services. They are a mandatory component of processing costs for every transaction processed through their respective networks.

Factors Affecting Buy Rates

The buy rate for a transaction is not static; it fluctuates based on factors related to the card, the transaction, and the merchant’s business. These variables directly influence interchange and assessment fees, impacting the overall wholesale cost.

The type of card used is a factor. Different cards carry varying interchange rates, with premium, rewards, or business cards typically incurring higher fees than standard consumer debit or credit cards. Issuing banks often use these higher interchange fees to fund cardholder benefits.

The transaction method also plays a role in determining the buy rate. Card-present transactions, where a physical card is swiped, inserted, or tapped, generally have lower interchange fees due to reduced fraud risk. Conversely, card-not-present transactions, such as online or over-the-phone orders, typically have higher fees due to increased fraud risk.

The Merchant Category Code (MCC) assigned to a business also influences its buy rates. This code classifies a business by industry type, and different industries may have varying risk profiles and average transaction sizes, reflected in their base interchange rates. While transaction volume or value might affect processor pricing, the fundamental buy rate structure is determined by card networks based on these characteristics.

Distinction from Merchant Discount Rate

The buy rate is the wholesale cost of a transaction, distinct from the merchant discount rate. The merchant discount rate is the total fee a business pays its payment processor for each transaction. This comprehensive rate encompasses the buy rate plus additional markups and fees charged by the payment processor, and is what merchants see deducted from their sales.

The merchant discount rate includes interchange and assessment fees, passed through to issuing banks and card networks. On top of these non-negotiable costs, the payment processor adds its own markup, covering services, operational costs, and profit. This markup can include authorization, monthly statement, gateway, and other administrative fees. Understanding the buy rate allows merchants to identify the processor’s markup, offering transparency into their processing expenses.

Payment processors offer different pricing models, each incorporating the buy rate and their markup. Interchange-plus pricing itemizes direct interchange and assessment fees, then adds a separate, agreed-upon markup. This model clearly shows the wholesale cost and the processor’s fee. Tiered pricing categorizes transactions into different tiers, applying a different, often higher, bundled rate. This approach can obscure the buy rate within the bundled fee. A flat-rate pricing model simplifies billing by charging a single percentage and a fixed per-transaction fee, regardless of card type or transaction method. While easy to understand, this model typically averages costs, meaning some transactions with lower underlying buy rates may be charged more. Recognizing the components of the buy rate helps businesses evaluate which pricing model offers the most cost-effective solution for their transaction profile and volume. By dissecting the merchant discount rate, businesses can make informed decisions about their payment processing partners and potentially negotiate more favorable terms.