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…

payment plus $3 payment fee (if allowed)
times .0217
discount percentage
discount fee
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
Down Pay
+ 1 Month
+ 2 Months
All Pays


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.