PayQuake has a credit card processing offer that sounds quite appealing.  Their LITE plan is advertised with the following features:

• FREE Set-up, 3.49% Discount Rate, $9.00 Monthly Minimum, $0.40 per transaction, FREE Monthly Fee, FREE Monthly Gateway

That sounds like a reasonably good deal for a startup online business.  The discount rate is pretty high, at 3.49%, but if your transaction volume is small, that might be better than other options that have a lower rate and a higher base monthly fee.

Unfortunately, the deal isn’t quite as good as it sounds.  We analyzed a friend of ours’ PayQuake bill and found that he was paying an effective rate of 5.87%.  A picture of the bill is below and we have put some notes in red.

• Section 1: The total volume for this merchant was 2,757.16
• Section 2: Only 1,046.00 of that was Mastercard or Visa and the rest (1,711.16) was American Express.  The American Express part has a seperate discount rate applied to it on a seperate bill.  For online merchants that rate is usually 3.5%.
• Section 3: The regular discount rate, 3.59% is applied to the 1,046.00 of Mastercard and Visa transactions for a total charge of 36.58 + 2.67 = 39.25.
• Section 4: This is where the nasty stuff happens.  Like many credit card processors, PayQuake tacks on an extra fee when a rewards card is used (that’s what CPS Reward 2 MOTO Ecommerce) or when something went wrong with the transaction (like if no address verification was done – this is what the line MERCHANT UCAF signifies).  More than half of all active credit cards are rewards cards, so this kind of “downgrade” is rapdily becoming the status quo.  In this section an extra 18.77 is charged.
• Section 5: This is the per-item fee of $0.35, which is ok, since they disclosed it up front (they have since raised it to $0.40 – this bill is a bit old), but it does add another $3.39.

In summary, this merchant was paying the following fees:

Disclosed fees:
Discount rate: 39.25
Transaction Fees: 3.39
Total = 42.64
Undisclosed fees:
Discount rate (downgrades / surcharges): 18.77
Grand Total = $61.41

Now, let’s calculate the effective rate, remembering that this merchant will get his Amex discount rate charged seperately on another bill.  Fees / Visa and Mastercard Volume = 61.41 / 1,046.00 = 5.87%.