Tap a card for a $2 coffee and the shop can lose almost 8 cents of it to fees before the cup is poured. This week: how money actually moves, and what moving it costs.
Learning objectives. After this week you can (1) compare the main payment rails; (2) compute a card fee and its effective rate; and (3) explain why settlement speed is a liquidity issue.
Remember this: money owed is not money in the bank until it settles.
1) The rails
| Rail | Speed | Typical cost | Built for |
|---|---|---|---|
| Card networks | Approved in seconds; merchant paid in 1 to 2 days | ~1.5 to 3.5% + ~$0.10 per sale | Consumer purchases |
| ACH (batch bank transfer) | Same day to 2 days | Cents per item (often ~$0.25) | Payroll, bills, business invoices |
| Real-time rails (RTP, FedNow) | Seconds, 24/7, final | Low fixed fee | Instant settlement |
| Wire | Same day, final | $15 to $50 | Large, urgent transfers |
Authorization is the instant "yes" at the terminal; settlement is the money arriving later. Most of a card fee is interchange, paid to the cardholder's bank. Digital wallets like Apple Pay mostly tokenize a card: same rails, with the real card number kept hidden. Fintech firms mostly build cheaper or faster services on top of these rails.
2) What a card fee costs
Card Fee = Sale × % rate + fixed fee · Effective Rate = Fee ÷ Sale
A $5.00 sale at 2.6% + $0.10: 0.026 × 5.00 + 0.10 = $0.23, which is 4.6% of the sale. On a $2.00 sale the same pricing takes $0.152, or 7.6%. The fixed dime is why small tickets hurt most. A month of $20,000 across 2,000 sales costs 520 + 200 = $720. A $1,000 business-to-business (B2B) invoice costs $26.10 by card and about $0.25 by ACH.
Merchants pay because cards bring customers. Networks are two-sided markets: they must keep both cardholders and merchants on board. A chargeback, a disputed sale reversed back to the merchant, is one more card risk. Cash has no network fee but has handling costs: counting, deposits, shrinkage (loss and theft), and customers who leave when they can't tap.
3) Speed is liquidity
Float is money in transit that someone else gets to use until it settles. A business waiting two days for card money is lending its own cash for free. In the arena your Winnings land in your bank on race day. If they settled two days later instead, next week's budget could come due before the cash arrived. Real-time rails shrink float by settling in seconds.
Quick self-check
(a) A $10 card sale at 2.6% + $0.10: fee and effective rate? (b) Which rail is final in seconds, weekends included? (c) The terminal beeps "approved". Has the merchant been paid? (Answers: $0.36, 3.6%; real-time rails; no, that is authorization, settlement comes later.)
Common mistakes
- Reading "2.6%" as the whole price. Add the fixed fee, then divide by the sale.
- Confusing authorization with settlement. The beep is a promise, not money.
- Treating cash as free. It has costs too; they just don't show up as a fee.
This week in the arena
Treat your last Winnings as an invoice. What would it cost to collect by card, by ACH, and by wire? Then look at your bank and ask what a two-day delay on that money would do to next week's budget.