A Portion of Your Credit Card Processing Fees Go To Charity. Is it Worth it?

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About 5 years ago, we first heard the idea of donating a portion of the credit card processing fees earned to charity. We considered it to be a genius marketing tactic. What business owner wouldn’t want a portion of their fees (so long as your fees aren’t going up!) to go to a charity of their choice? And that’s just what they want you to think. Merchant service providers had really struck a chord with this marketing campaign.

But before business owners nail a giant sign to their door announcing their extreme generosity to impress the community, how much is a portion exactly? We’ll use charity promoting heavyweight, Fees to Funds, as an example. Operating under the slogan “Generosity in Action”, Fees to Funds promises to donate 25% of their gross revenues to a charity of the business owner’s choice. While being completely open about the percentage, they rely on the general public’s lack of understanding on how the merchant processing industry works. 

It’s important to grasp that the majority of what businesses pay in acceptance fees is being applied to interchange costs. Interchange Rates are set by Visa and MasterCard and are uniform nationwide. Interchange is payable to the banks that issue the cards to the consumer. So for example, when a customer uses a Bank of America Visa Card to pay at a restaurant, the majority of the card acceptance cost is going to Bank of America. Very little actually goes to the merchant processing provider that services the account for the restaurant.

In the case of Fees to Funds, they are not even the direct merchant processing provider but rather are a reseller for iPayment and Allied Bankcard. This means the tiny portion above interchange that is actually going to the merchant processing provider is then split with Fees to Funds. 25% of What Fees to Funds grosses is then applied to your charity. Suddenly your charitable contributions are not so generous…

So let’s do the approximate math:

A small restaurant processing $10,000 per month in Visa/MasterCard sales agrees to the charity program. Fees to Funds agrees to keep your rate structure the same. On $10,000, the business is currently paying net fees of 2.5% ($250). Of the $250, approximately $200 is applied to Interchange and paid out to the banks that issued the cards to your customers.

That leaves $50. Visa and MasterCard charge network fees of 11 basis points or .11%. .11% of $10,000 is $11. Subtract $11 from the $50.

That brings it to $39. Since Fees for Funds is a reseller of iPayment and Allied Bankcard, they split the revenue. (Let’s say it’s 60-40 in Fees to Funds favor.)

That brings it to $23.40 that is paid to Fees to Funds. 25% of their gross revenus is applied to charity.

$5.85 is paid to the charity. That is 2.34% of the total net fees.

While we can’t say what the results will be for every business, this reflects a real life scenario. Our advice? Donate to charity on your own or seek out lower processing costs. Treat these charity gimmicks for what they are, just gimmicks.



Last modified: February 21, 2013
Sean Murray

Category: Merchant Processing, MPR Authored

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