Payment processing fees

The spread is a fee that is not called one

A processor that advertises "no transfer fee" can still take three per cent, by converting your money at a rate worse than the mid-market one and keeping the difference. Nothing on the statement is labelled as a charge, because arithmetically there was not one — there was a rate, and the rate was the charge.

This is why comparing advertised percentages between processors tells you so little. The published fee is the part they compete on; the spread is the part they do not. To find yours, take the amount that actually arrived, divide it by the amount in the original currency, and compare that rate against the mid-market rate for the day you were paid. The gap, as a percentage, is the number the calculator wants.

Two deductions do not add up

A 2.9% fee and a 2% spread is not 4.9%. The spread is taken from what the processor left rather than from the invoice, so on 1,000 the fee takes 29 and the spread takes 2% of the remaining 971 — about 19.42 rather than 20. The total comes to roughly 4.86% of what you billed.

The difference is small on one invoice and it is not the point. The point is that the figure in your head is the wrong one, and it is wrong in the same direction every time, which is how a year of invoicing quietly fails to match the year of deposits.

Working backwards is a division

To receive 1,000 through a processor charging 2.9% you do not invoice 1,029. That leaves you short, because the 2.9% is charged on the larger figure you did not have when you did the sum. What you keep is 97.1% of the invoice, so the invoice is 1,000 ÷ 0.971 — about 1,029.87, and the 87 cents is the part the quick version misses. It is the same kind of division as taking VAT out of an inclusive total.

It is the same shape of mistake as taking VAT out of a total by subtracting a percentage, and it grows with the rate. At 2.9% it is under a pound on a thousand. At the rates some cross-border processors charge, it is a meal.

The order these are applied in

The fee comes off first and the exchange spread second, which is the usual sequence: the payment is taken in the currency it was made in, the fee comes off there, and what is left is converted. Some processors convert first.

The difference is a cent on a thousand, so it is not worth worrying about — but it is worth knowing that the calculator made a choice, because a figure that disagrees with your statement by a cent has an explanation rather than a bug.