Credit Card Processing Fees Explained

You will notice when processing credit card payments that you won’t collect all the money you get from a card payment. You’ll be subject to various credit card processing fees. These fees may seem small at the start, but they can interfere with your business operations after a while.

You can expect to spend anything from 1.5% to 3.5% on each transaction you process. The processor you choose will have the greatest impact on what you’re going to spend on processing fees.

The Two Basic Types of Fees

You will pay two types of fees when handling credit cards:

Interchange fee

The interchange fee is a charge a credit card network will impose on each transaction. The networks establish unique fees for each business.

An interchange fee is a percentage of a transaction plus a fixed fee for each deal. For example, the fee could be 2.3% plus 10 cents for an order.

Card networks will determine their interchange fees surrounding the industry a business is in, the provider that issues the card, the type of card one uses, and so forth. You could be subject to a wildly different interchange rate than what another business in your area could spend.

You can contact individual card networks to see what they will charge in interchange fees for your business. Visa and MasterCard typically have lower network rates, but they will have different terms for what industry you support.

Meanwhile, American Express and Discover are more specific on what rates you will spend with them. They also offer higher rates on average, as these two networks operate as both credit card networks and issuing banks. They have more control over what you will spend, thus making it where some businesses may be reluctant to accept cards from these networks.

These interchange fees can also change a few times a year. The credit card networks usually review their rates at least twice a year in April and October and will dictate whatever changes they want to make to their interchange fees from that point.

Merchant fee

The merchant fee is the one a merchant service provider will impose on your transaction. The fee is a percentage of the transaction to go alongside the interchange fee. Some merchant fees may include a per-transaction value.

Merchant service providers will use many parameters for determining what you will spend on a card transaction. You could pay more if you’re in a high-risk industry or if your business isn’t as experienced and reliable as others.

A merchant fee may come with a tiered or interchange-plus setup. A tiered plan means you’ll spend a different rate based on the type of card someone uses. Some tiered plans may also cover different rates for transactions of varying values.

Interchange-plus plans work differently, as you will pay an interchange fee plus a percentage or fixed price. The interchange-plus system is the most common choice, especially for those who focus on online sales and other high-risk transactions.

What About Flat Fees?

You may also pay some flat fees atop of whatever interchange and merchant fees you will spend. Some of these fees include the following concerns:

  • Monthly or annual account fees – These charges come from a processor who needs help maintaining a network. You must pay these fees to continue using a processor’s services.
  • Minimum processing fee – You might pay an extra fee if you don’t process enough funds in a specific period. The problem can be substantial if you’re in a down period or you’re otherwise struggling to bring in money.
  • Terminal fees – Some providers will make you pay to rent or lease a terminal. Not all providers will do this, as leases can inhibit how well a business operates. Some providers could also give you a choice to outright purchase your POS equipment.
  • PCI fees – Not all providers will charge fees to ensure you remain PCI-compliant.
  • Chargeback fees – These fees only apply if you experience chargebacks. You will pay an extra amount of money to process a chargeback, which can be a problem for a high-risk business that is often subject to these concerns.
  • Cancellation fee – Some providers will also make you enter a long-term contract. You’d have to pay a cancellation fee to get out of that contract before it ends. Looking for a provider that doesn’t require long-term contracts may be your best choice for work.

The total value of these fees will vary by provider. These flat fees could be one percent of your credit card transactions in some cases.

How Do These Fees Impact Your Business?

You’ll spend a few percentage points on each transaction you process. The cost might sound minimal, but it can be tough to handle after a while.

For example, you might have a total rate of 2.8% plus 10 cents for each transaction you complete in your business. You could collect a $300 payment from someone’s card, but you’d have to spend $8.50 to process the transaction. You will only collect $292.50 from the transaction at this point. You’d still spend extra when you consider the monthly charges you would spend, especially if your business experiences more chargebacks than others.

The total will add up after a while to where you might struggle to manage these fees. A business that collects $50,000 in payments each day could spend at least $1,000 on those transactions. Your cash flow will be disrupted due to these high charges, making it essential for you to review who you’re hiring when processing your cards.

A Final Note

The most essential point to see about credit card processing fees is that they will vary mainly over which merchant service processor you hire. You cannot change what networks will plan for their interchange fees, but you could pay lower merchant fees depending on where you go for services. Look at how your business operates and see which providers you could benefit from the most when finding a smart choice for work.

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