Credit Card Processing Fees: How They Impact and How to Save

Credit Card Processing Fees: How They Impact and How to Save

When consumers use their credit or debit cards to make a purchase, the businesses pay fees to payment processing companies to accept the transactions. Unfortunately, the merchant fees remain astoundingly high. In terms of credit card processing fees, it seems the banks always win. Still, regardless of size, most businesses cannot survive without accepting credit and debit cards. Yet, card processing fees are one of the highest expenses for business owners. Continue reading to learn how you can lower your credit card processing fees.

You’re not invited to the party

There are four parties involved with every single credit card transaction: the merchant receiving the payment, the bank that provides processing services, the bank that issued the card to the customer and finally, the customer. The issuing bank’s fee is called the interchange fee. The acquiring bank’s fee is called the discount rate. They are both conveyed as percentages of the transaction.

Processing costs and fees

When you accept credit and debit cards at your place of business, you have to pay for setup, application to processing and customer service. If the customer uses a credit card, the money is lent by the issuing bank to the customer. The customer will either pay off the debt within 30 days or pay interest on it. Fees are deducted by the bank the merchant uses to provide processing services, also called the acquiring bank.

In addition, the issuing bank deducts fees as well. Some banks that give credit cards with the Visa, MasterCard and Discover brand act as issuing banks. On the other hand, American Express acts as an issuing and acquiring bank that charges a single fee to the merchant. You can find the card processing fees and interchange rates for Visa here and MasterCard here.

Some factors at play are:

  • If the card is present at the transaction
  • What type of merchant receives the card
  • If it is a rewards card
  • If it is a government card
  • What type of card is used

The issuing bank’s fee is called the interchange fee, and the acquiring bank’s fee is called the discount rate. The type of business you are in also affects credit card processing fees. If a customer successfully disputes a charge, this is called a chargeback. Issuing banks hate chargebacks and want to be compensated for any risks involved.

If a customer complains about your products and services, you will get charged for the money you were paid by the acquiring bank and some additional fees. Even if you try to appeal, it will take time and you will most likely lose. Banks consider the safest transactions to be ones where the cardholder is present to swipe or scan the card and sign the receipt.

Furthermore, products and services that are standard usually get better card processing fees such as car rental agencies, restaurants and gas stations. Transactions completed online or via phone often come with more complaints. Here is the breakdown of setting up for payments:

  • Set up fees–between $50 and $200
  • Credit card processing fees–between 2 percent and up to as high as 4 percent
  • Cost of implementation–can run into the thousands for multiple POS terminals
  • Customer chargeback fees
  • Fraudulent activity–some banks will hold you liable if fraudsters use stolen customer data to make purchases

All the fees

We’ve discussed a bit about discount rates and interchange fees. Now, let’s look at all of the fees involved.

  1. Dues and assessments. These are fees set by MasterCard, Visa and Discover and charged to the merchant. They are collected by the merchant processor as a per-item fee and percentage of the sale.
  1. Interchange fees. These are card brand fees charged to the merchant made up of a per-item fee and percentage of the sale. They are paid to the issuing bank.
  1. Discount rates. These are charged to the merchant, as set by the merchant processor. The acquirer can also charge its fees separately, also known as “interchange plus.” Although, the card processing fees can also consist of a fee schedule with one or more discount fees.

It is critical to note that every processor offers a different pricing model.

How to cut down on card processing fees.

When card processing fees are the equivalent of 3 percent of your gross sales, that can make a significant dent in your net profits. This is why it’s imperative to understand how each processor approaches pricing. Then, there are hidden fees such as membership fees, compliance fees and access fees that can be found hiding in processing statements.

You might find more information about these hidden fees in the jargon and fine print from offers and contracts. Some may even have increases between the months of April and October. For a small business, it can feel overwhelming trying to keep up with all the fees. It hurts the most when you are desperately trying to increase your revenues. Plus, if there is a fraud complaint, you may be liable. Here is what you need to do:

  1. Read your statements. It is up to you to make sure you are not being subject to too many hidden fees and surcharges. In this sense, it pays to hire a specialist who understands how to decipher monthly processing statements to look for surcharges and outdated pricing.
  1. Shop around. Before you select a provider, do some comparison shopping. Some may charge a lower rate but make up for it with hidden fees and poor customer service. Look through the Better Business Bureau website to verify whether the company is accredited and if they have received many customer complaints. You should ask the total rate, including all fees. You also want to know if there are service and application fees, as well as statement and cancellation fees and contracts.
  1. Make sure to swipe. According to Intuit Quickbooks, it costs more to enter a cardholder’s information manually. Credit cards have magnetic strips with built-in security features. The magnetic strips aren’t used when the card is entered manually. As a result, credit card processors charge you more for manual transactions.
  1. Only accept credit cards after a minimum sale is met. If you own a convenience store where you have many small transactions, it wouldn’t be worth the credit card fees. Since it is difficult to operate without allowing for credit and debit card usage you can set up minimum credit card sales. Hang a sign stating that credit cards are only accepted with a minimum sale of $20. This way, you cut down on your credit card processing fees.

Many businesses have to deal with a loss of income from high credit card processing fees. You don’t have to accept it any longer. Do your research to find the right processor, and make sure to read your statements diligently.

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Ryan Stewart

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