Why do online systems charge between 3 and 10 or more percent?

/ By: Dominik Jablecki / 0 Comments


"Why do online systems charge between 3 and 10 or more percent for processing payments?". This is a question that we're asked very often so I thought I would address it in a post because it’s important when you’re comparing, that you’re comparing apples to apples. I’m going to look at this from a very fundamental perspective and group providers into 2 categories:

  • Payments Standard 
  • Payments Premium.

I'll avoid getting into the details about merchant banks or payment gateways because it’ll make your head spin.  Don’t believe me? Do a quick search on the web for “how does online payment processing work?” and you’ll find plenty of material attempting to simplify this fairly complicated process.

In this post, I'll strictly focus on percentage based off the shelf solutions but you can view the guide on whether an off the shelf or custom solution is your best fit.

So let’s start with the concept that as a sport organization manager, you’d like to be able to do the following:

  1. On your organizations website, you have a link for your customers to click Pay Now and pay by credit card
  2. View reports on what you’ve sold

I'll group this basic level of processing into what I'll call Payments Standard.

For this basic need, you’ll find various providers with the most common one being PayPal. For what I call Payments Standard, PayPal offers a service called Payments Pro which costs 2.9% + $0.30 per transaction + $35/month or $420/year.  With this service, you get a page where you can post your offerings, have a checkout portal with a button where your customers can click and pay.  If you just want a portal for for your customers to pay via credit card, it's probably all you need but what if you still need:

  • A registration portal
  • A integrated registration and checkout process so you don't have to match up the registration with the payment
  • Sport club specific reporting
  • A dedicated person to give you advice on best practices to setting up your portal
  • A dedicated person to help you set it up by phone not just email or documentation
  • Ongoing support via phone/email

For these additional services, you’ll be required to pay in addition of the the Payments Standard rate.  If you're someone who has technical knowledge to put all this together by combining various services, you may be thinking, "it's a bit of work but it can be done".  For others who either don't have the technical knowledge, time or resources, this is likely not your best option.

So while PayPal and services alike, are excellent providers for processing payments, if you’d like more than just Payments Standard and need a package with the additional services I’ve outlined above, you'll want to upgrade to a more comprehensive package.  We’ll bunch these additional services into what I'll call Payments Premium.

I should point out that there are options for replicating the services described in the Payment Premium offering which you can combine with Payments Standard to create a complete registration and payment system.  The caveat being that the package you put together may be comprised of more than just a single platform or service.  For example, you could use Google Forms to replicate the registration process and capture various information about your registrants. You can also build your own website where you can embed the Google form you created along with the payment button provided in Payments Standard. 

If you have the technical knowledge to make this work, this might be a suitable option however, it will cost you in your time and/or additional expenses. In addition, you'll have to match up the payments you receive with the registrations.

So let’s look at the diagram to summarize the differentiation between Payments Standard and Payment Premium.  As an example, we'll focus on a 5% total charge per transaction (which is our rate at Checklick).



Let’s crunch some numbers

To make sense of the value, let’s crunch some numbers for both the Payments Standard and Payments Premium options.


Payments Standard

As an example, let's consider a local sport club called the “Local Gymnastics Center” which processes $50,000 annually at $250 per course/membership sold.  $50,000 in annual sales volume at an average of $250 per course/membership sold, equals 200 transactions per year.  Payments Standard processing would cost the Local Gymnastics Center:

[($50,000 x 2.9%) = $1450 + (200 x 0.30) = $60] = $1450 + $60 + $420 = $1930/year

This doesn’t include:

  • A registration portal
  • A integrated Registration and checkout 
  • Sport Club specific reporting
  • A dedicated person to give you advice on best practices to setting up your portal
  • A dedicated person to help you set it up by phone not just email or documentation
  • Ongoing support via phone/email

Payments Premium

With the same volume as in the example above, Payments Premium would cost the Local Gymnastics Center:

[($50,000 x 5%) = $2500/year 

Comparing the costs of both payment offerings, we can see that for the Local Gymnastics Center, the difference in cost for Payments Standard vs. Payments premium on $50,000 in sales, is $570/year.  

If we assume that payments premium costs 5%, that means Payments standard in the $50,000 in sales volume above is costing the Local Gymnastics Center 3.9% ($1930 / $50,000 = 3.9%).  Have a look at the diagram below.

Cost on 50K in annual volume


Which solution is best for you?

If you’re looking for a standard portal where your customer can go through a checkout and pay and you have the technical knowledge to put together a registration form and integrate it with the checkout portal, you can likely make do with Payments Standard.

If you decide to go this route, you'll want to consider the following:

  • Have fairly good technical knowledge
  • Have the resources to integrate the registration portal with your checkout portal
  • You'll need to support each one of the systems that you've used to integrate the registration and checkout portal
  • You will likely not be able to find a payments standard solution that offers phone support

If the Payments Standard solution doesn't seem like a good fit for your organization, you'll want to explore a more integrated payment, registration and support solution that puts it all together and consider a provider who can deliver what we've referred to as Payments Premium.

Good luck with your search!





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