A Merchant Breakdown of Credit Card Processing Fees
By Nina Gass
Depending on the credit card processing company you choose to partner with for your online, in-store, and mobile payments, you will face a potential list of credit card processing fees that quickly eats away at your potential profits for accepting these credit cards.
But, hey, your customers will demand that you take credit cards.
As a small business, the credit card processing fees can easily diminish the benefits of accepting credit cards unless you shop around and look for those merchant partners that provide a better deal.
Knowing a little more about what credit card processing fees are and which ones are out there can help you when you do your research so you can avoid as many pitfalls and fees as possible.
Here is a breakdown on the types of credit card processing fees:
These wholesale rates and fees are issued with every transaction that involves a credit card being processed and tends to be the largest costs associated with that processing.
These fees are typically referred to as interchange fees and are a percentage of each transaction amount plus a flat transaction fee that is combined and taken from each transaction you conduct.
The percentage tends to be lower the higher your transaction volume and amounts are each month.
On top of transactional fees, there are a number of flat fees that will be charged on a monthly or annual basis to your merchant account or credit card processing account.
If you process credit cards in your store or physical location, you most likely use some type of terminals to swipe the credit card for each transaction.
For these businesses, you may have a terminal fee associated with a terminal lease fee. You can opt to purchase the equipment and then only be subject to a one-time fee, which is the cheaper way to go.
For an online business, payment gateway fees replace a terminal fee. If you operate an e-commerce business, you can also consider an in-house payment gateway to avoid this fee.
PCI fees can be for compliance or noncompliance and are paid to the Payment Card Industry. Typically, the fee is charged for not upholding PCI standards so it’s important to stay updated on rules and standards so you can also avoid this fee.
Some credit card processing companies may claim you have to pay this fee no matter what but that’s not necessarily the case.
Many other flat fees may also appear that also may be avoided by not taking that action or selecting a different credit card processing provider.
For example: there may be early termination fees if you go with a credit card processor that makes you sign a contract and you decide to cancel it early. Another fee is a monthly minimum fee for those merchants who do not deliver a minimum amount of transactions.
Other companies may charge statement fees if you want your credit card statement mailed, but they will not charge you this if you decide to have an electronic statement. More flat fees to try and avoid include IRS report fees where you are charged for the processor reporting transaction information to the IRS, online reporting fees, and network fees.
These types of fees are only charged when there is some type of action that has taken place, which warrants the fee. A chargeback is a good example of an incidental fee where one month you will have a few while others you will have none. A related incidental fee is a retrieval request fee in which a customer may initiate a dispute related to a charge and a retrieval of information related to that charge starts the process.
For an online or e-commerce business: one fee that you may be charged is what’s known as an Address Verification Service (AVS), which is then charged on every online transaction you handle.
If you are asked to call a toll-free number to verify information related to a certain transaction, you may also be charged a Voice Authorization Fee (VAF).
Other incidental fees include a batch fee for submitting a batch of transactions for processing at a time as well as a NSF (non-sufficient funds) fee for when you don’t have enough funds in your bank account to cover the merchant account expenses that are billed to you.
The Financial Middlemen Behind the Fees
Most of these fees come from “financial middlemen” liked credit card associations (think Mastercard, Visa, and American Express), payment gateways, credit card issuing banks (Citi, Chase, etc.).
These are merchant account providers and credit card processors that offer the payment gateway, technology, and transaction framework that goes between you and your customers.
What is Negotiable and What Isn’t?
Certain fees can be negotiated to a lower rate, but others like wholesale fees (also referred to as a base fee or pre-mark-up fee) cannot be altered and you will find they are the same wherever you go for credit card processing services.
These wholesale fees cannot be changed because they are determined by the credit card associations or the bank that has issued the credit card. Some of the flat fees are essentially mark-ups where the processor can make a profit so these tend to be negotiable.
Take your time and shop around so you can learn more about the available credit card processing companies, which number in the hundreds, so you can leverage the benefit of the competitive pressure in the environment to win your business.