What is True Cost?
July 17th, 2019

Sonder Payments is dedicated to offering transparent pricing, which is why we use cost-plus pricing, sometimes called pass-through pricing. Cost-plus pricing allows merchants to see what portion of their processing fees are cost versus what is margin for their provider. At Sonder Payments, we often use the phrase “true cost” when describing our pricing model. You may have heard the following phrase from your Sonder Payments representative:

“Sonder Payments members pay true cost, plus low per-transaction rates starting at just $0.08.”

So what is “true cost”? And why do we use the phrase “true cost” rather than just saying “cost”? 

Simply put, true cost refers to all non-negotiable fees charged by other parties in the transaction process. We don’t want you to be surprised by fees on your processing statement each month. The word “cost” is almost synonymous with interchange in the payment processing industry. Because there are other unavoidable and non-negotiable fees associated with your Sonder Payments merchant account, we use the phrase “true cost” to avoid confusion.

Here are the fees that play a part in true cost:

Interchange

Interchange rates are set by card networks (such as Visa, Mastercard, Discover, and American Express). These rates vary depending on several factors including the type of card, the method by which it’s accepted, and the industry in which the merchant operates. While many refer to interchange simply as “the cost of completing a transaction,” there are three primary items that it covers:

  1. Risk: Credit card fraud is a major issue. Banks and card companies lose hundreds of millions of dollars to fraud every year, and interchange is one way they can protect themselves against it. As a merchant, you can reduce what you pay in interchange by decreasing the risk associated with your transactions. For example, rather than sending an electronic invoice to a customer, you could meet them in person to swipe their physical card.
  2. Card Rewards: People love their card rewards. Though consumers see cashback and airline miles as perks of using a card, merchants see them as higher interchange rates. This means that transactions using a debit card will cost less than those run with a gold-platinum-premier card.
  3. Maintenance of the network: Card networks facilitate millions of transactions every day.  Building and maintaining the infrastructure capable of processing that much data is not cheap. Engineers, rent, and other operational costs all take a little piece of your card transactions as interchange.

Assessment Fees

In addition to the interchange costs of completing a transaction, card networks take assessment fees on each transaction. Think of these as your membership dues for participating in the card network, similar to the membership fee you pay with Sonder Payments. These are the fees that make card networks their money. Unfortunately, card networks are not exactly transparent about what factors play into these rates. On average, you can expect these fees to take about 0.13% of each transaction.

Authorization Fees

To understand these fees, it’s important to understand the difference between an authorization and a transaction. An authorization is half of the transaction process — confirming that the card being used has sufficient funds associated with it to cover the transaction total. If funds are sufficient, the bank will place a hold on them until the transaction is completed. If not, the transaction will be canceled.

Because authorizations are put through half of the transaction process, there are fees associated with them, even if the transaction is never completed. If a customer’s card declines, you’ll still pay for the authorization.

The only case in which authorizations will not incur their own fees is when they result in a completed transaction, in which case you will be assessed interchange fees on the transaction instead.

These fees vary by card network but are usually minuscule, static amounts. For example, the Discover network charges an authorization fee of $0.0025 for every attempted transaction. In some cases, the network will also assess a Data Usage Fee which covers the cost of transmitting card data within the card network.

Chargeback Fees

As we mentioned earlier, fraud is a big issue for card networks and banks. When customers suspect fraud, they can initiate a chargeback, which reverses the transaction and returns the funds to the customer’s account. Naturally, banks and card networks want to avoid these situations as often as possible, which is why merchants are hit with chargeback fees at each instance of suspected fraud.

These fees cover the cost of sending funds back to the customer, but that’s not their primary purpose. These fees are meant to discourage merchants from shady business practices. Sadly, some customers have started abusing chargebacks, treating them as guaranteed refunds when they’re dissatisfied with a purchase. No matter what type of business you run and how honestly you operate, you’ll probably see chargeback fees from time to time.

While these are not all of the fees included in true cost, they are the most significant and affect almost every business processing with Sonder Payments. If you’d like to learn more, we’re happy to answer any questions about the true cost of your Sonder Payments merchant account at any time.

Questions about true cost? Curious to learn more about Sonder Payments pricing? Contact us by calling (314) 722-6424 or emailing info@sonderpayments.com!