Accepting credit card payments is an essential step towards improving the overall growth of your business. However, understanding the dynamics of credit card processing fees is complex since everyone involved in the transaction cycle must be considered. That includes customers, issuing banks, acquiring banks, merchants, and payment processors.
What’s essential to understand is that you can control the cost of your credit card processing fees. If you can avoid hidden credit card fees, you’ll be at a better place to ensure that credit card fees don’t take a toll on your finances. This guide will shed some light on the different credit card processing fees and why they exist. Read on!
Why do we incur Credit Card Processing Fees?
One reason for credit card processing fees is that merchants have to pay for the convenience of accepting credit card payments, and customers benefit from credit card rewards. That doesn’t mean that customers don’t pay for these fees. Businesses will increase prices or use surcharges to make up for merchant credit card fees.
Types of Credit Card Processing Fees
If you’re seeking an affordable merchant service provider, you need to consider the models they use to determine their credit card process fees. The most common types of processing fees include:
- Transaction fees
- Incidental fees
- Flat fees
Transaction Fees
Whenever customers swipe a card at your store, several entities are involved: the issuing bank, the credit card network, the receiving bank, and the payment processor. Each of them has to make a profit which is a portion of the transaction amount. The transaction fees include payment processor markup, interchange rate, and assessment fee.
The interchange rate is the amount the issuing bank gets from the acquiring bank whenever a credit card transaction occurs. The interchange rate shows how the issuing bank earns a profit, but how do credit card companies make money? That’s where assessment fees come in. The credit card company charges a fixed fee on every credit card transaction.
Interchange and assessment fees are fixed rates that you can’t avoid. However, you can control the amount you pay for payment processor markup. These are fees that the payment processors charge to earn a profit. The markup fees depend on the type of payment processor’s pricing plans.
Flat Fees
The flat fee is what your payment processor charges you to use different aspects of their services. The credit card processor can charge you a one-time, flat fee for all your monthly or annual transactions or recurring flat fees. The rate may be constant for different types of cards but vary with the type of transaction processed.
For instance, you will be charged less if a customer uses a chip and PIN than when they key in credit card details on a POS app.
Incidental Fees
These are costs paid to your payment processor for occurrences like chargebacks. This means that you may not incur these fees every month. The amount of incidental fees you incur depends on the type of payment processor.
Your payment processor may charge you incidental fees when:
- A customer disagrees with a credit card charge
- There is a chargeback
- You submit several credit card purchases frequently, probably more than once per day.
- Your bank account balance is not enough to pay the payment processor
Bottom Line
Credit card processing fees may seem insignificant, but they can accrue to affect the overall finances of your business. Understanding different credit card processing fees and pricing models will help you pick the best merchant service provider for your business.
