There are a lot of positives to accepting credit cards. You give your customers the convenience
of using cards, so they don’t need to carry cash. (You also give them the ability to make
purchases that cost more than the cash they have in their pockets.) Depending on the payment
technology you have, you may also be able to accept contactless payment cards or mobile wallet
payments. Transactions are faster than when customers pay with cash or check. Lines move
faster, and customers are happier. However, there are also negatives to accepting credit cards,
and topping the list are credit card fees.
Breaking Down the Fees for Each Transaction
Every time you accept a credit card, you pay a fee. That fee includes:
- Interchange rate: This is the biggest part of the fees you pay. The card issuing bank charges this fee based on the card network and the card type, for example, business credit cards or rewards cards. It also depends on your merchant category code (MCC) — some businesses are considered higher risk for fraud than others. The interchange rate will also be different for payments you accept in person and payments you take online.
- Payment processor fees: The payment processor manages communications from your card reader to the card network and the consumer’s bank. The processor will charge a fee for that service.
- Solution provider fees: A portion of the credit card fees you pay also goes to the business that set up and helps you manage your merchant account.
Financial advisors Value Penguin report average credit card fees range from 1.43 percent to 3.5
percent of transactions.
Different Providers, Different Fee Structures
How the fee is calculated differs depending on which payment processor you use. Some payment
processors offer “interchange-plus pricing.” This allows you to pay a fixed rate in addition to the
interchange percentage. Interchange-plus can result in a lower overall rate that’s more
transparent and easier to understand, especially if average tickets are high.
Other processors use a tiered system in which credit card fees are based on “qualified, mid-
qualified and nonqualified” transactions. Transactions that don’t meet standards for the
“qualified” category are “downgraded” and result in higher fees. With a tiered system, fees can
be hard to predict, and sometimes the reasons for downgrades take time and effort to understand.
You may also notice on the statement that you’re paying more than just interchange and
processing fees. Added fees – which you may not have anticipated – include:
- Costs for payment terminals
- Charges for support and service
- Statement or reporting fees
- Chargebacks and fees after a consumer disputes a charge with the card-issuing bank rather than with you
- Batch fees when you settle your terminal
- Voice authorization fees if you have to call for authorization
Why Some Merchants Settle for Flat Credit Card Fees
With so many factors contributing to the credit card fees you pay, it’s not hard to understand why
some merchants just use a company that charges a flat fee. It’s simple – you know exactly what
you’ll owe upfront. However, the problem is that flat fees often result in merchants paying morethan they would with providers that offer interchange-plus pricing.
It may not seem like a percentage or two would make that much difference. But suppose your
business has $10,000 per month in credit card transactions. A difference of 2 percent would
mean $200 more in credit card fees per month or $2,400 per year.
It’s significant, and it’s worth saving. Besides, if you’re rebuilding after COVID-19 shutdowns,
it’s profit you can’t afford to lose.
Are you confident that you have the best possible deal when it comes to credit card fees? Our
team is available to review your statement. We’ll also point out charges you may be able to
Contact us to finally understand your credit card fees.