Credit card processing fees can significantly eat into your business’s profit margin. However, they’re not set in stone, and ways to minimize them exist. You can identify hidden costs and choose the best supplier for your company by knowing how credit card processing fees operate.
The three main categories of transaction fees—interchange, assessment, and processor markup fees—will be discussed in this article.
Fees by Network
The three players that make up the majority of credit card processing fees—the issuing bank, the card network, and the payment processor—have their fee structures. While these are generally standardized, some nuances and differences can vary from one provider to the next.
For example, a business that accepts American Express cards may pay higher credit card processing fees than those that only accept Visa or Mastercard. American Express does double duty as a card issuer and a payment network, which means it must generate profit by charging higher fees to its merchants.
Additionally, the type of transaction a business is processing can affect its credit card processing fees. For instance, international transactions tend to have higher fees than domestic ones because the acquiring banks and card networks must perform more work to verify and settle these types of payments.
Similarly, some merchant categories are considered higher risk than others and thus charge higher rates to offset the cost of fraud and chargebacks. Despite these variations, most credit card processing fees fall within a narrow range. Finding the lowest markup over interchange and assessments ensures your small business gets the most value from its processing costs. To do so, you must separate these essential fees into their categories when shopping for a processor.
Fees by Provider
The costs associated with processing credit cards can quickly mount up and reduce the profits of your small business. Understanding the various factors determining credit card processing rates is essential. In addition to the wholesale interchange fees from the card brands, your payment processor may also charge other service, transaction, and assessment fees that vary from provider to provider.
These additional fees include minimum monthly processing fees, statement fees, equipment rental fees, PCI compliance fees, and terminal lease fees. The most transparent model is flat-rate pricing, where all types of transactions receive the same rate. This structure typically does not include a markup over standard interchange rates, making comparing prices with other providers easy.
Other fee structures include interchange-plus pricing, where the average interchange fees are combined with a defined markup that goes to the processor. It lets you estimate your average credit card processing fees and compare them to other providers, ensuring you get the best deal.
However, this model may not work well for businesses with low ticket sizes or high transaction volumes. In these situations, a tiered pricing structure can be more cost-effective as it provides lower rates for certain types of transactions.
Fees by Card Type
The fees you pay to take credit cards will vary by payment method, card type, and processor. These interchange and assessment fees make up most of your credit card processing costs. Interchange fees go to the card networks, and they can be based on your merchant category code (MCC) and whether you are swiped or chip-enabled. Assessment fees are a percentage charge on your transaction volume, and they can be presented as qualified, mid-qualified, or non-qualified rates.
The best credit card processing companies are transparent about their markups over interchange and assessments. They also offer tiered pricing to see how your processing costs compare to the industry average.
Choosing the right provider for your business requires researching and comparing rates by transaction method and card types. Use a credit card processing fee calculator to determine what fees you will pay for taking credit cards. Then, enter your processor’s rates and a markup amount to calculate monthly processing costs.
Fees by Transaction
Credit card processing fees are a necessary business expense, but it’s also an area where small businesses can often save. By examining the average fees per transaction, business owners can compare their costs to other providers and work to minimize their expenses.
Merchants can use online calculators that estimate their overall fee structure and see how it stacks up to the averages. It’s important to note that these averages don’t include processor markup, which varies widely between providers and is hard to establish as an average. Some flat fees, including PCI compliance and set-up charges, aren’t included in these averages.
If you have yet to be able to negotiate with your provider or find another option, consider reducing the fees that represent your processor markup by switching to a lower-tier plan or offering a cash discount to encourage more customers to pay in person. Likewise, if you’re on a flat-rate plan, consider moving to an interchange-plus pricing model that can help reduce your transaction fees.
Conclusion
Credit card processing fees can be confusing, but with some research, you can find the best rates for your business. The secret is to locate a supplier who can meet your needs for features without raising your overall costs. Your business can thrive with the right combination of pricing options and services.
