# Effect on Profits

The math for the effect on profits of card transaction cost is pretty interesting. I hope I can present it here in a clear and valuable way.

This baseline example is using these inputs…

• Card Discount Fee = 2.17% of the payment plus 25 cents per transaction. This has been a good rate in the past. You can substitute your own actual rates in the formula. Don’t forget the flat per transaction fee many agreements include.
• A six month policy for \$1,000.
• You have a Combined Ratio of 98% – very good.
• You expect a profit of \$20.
• You offer a 4 payment plan and you get a \$3.00 payment fee for each payment after the down payment.

If your insured just pays the down payment with her card, here is what happens…

 \$253.00 payment plus \$3 payment fee (if allowed) times .0217 discount percentage \$5.49 Sub-total +0.25 discount fee \$5.74 Total Transaction Cost
Change to Profit = \$20 profit plus \$3 pay fee minus \$5.74 = \$17.26 profit.

Change to Profit at Various Payment Numbers

 # of Payments by Card Cost to Accept Revised Profit Revised Combined Ratio 0 \$0.00 \$20.00 98% Down Pay \$5.74 \$14.26 98.57% + 1 Month \$11.48 \$8.52 98.15% + 2 Months \$17.22 \$2.78 99.72% All Pays \$22.96 \$2.96 100.27%

 Worst Case Paying the fees yourself leads to a change in your combined ratio from 98% to 99.39. On \$1 million in premium the profit went from \$20,000 to \$6,100. If you write 12%* less premium because of the fee and all else is equal… (*this is the percentage decline in usage in the Federal Reserve Study on the Payment Trends page) New written premium is \$880,000 with a profit of \$17,600. The use of Service Fees is the only way to accept card payments and legally avoid this impact on profits. To discuss this further please call me – Duke Williams – at 800-768-0907. Contact us at 800-768-0907 to discuss accepting credit cards and benefits for your company.