The credit card processing fees you have to pay for each transaction ideally should be your point of worry because it will determine the end amount that you pay.
These fees will largely depend on and vary on the pricing model followed by your merchant provider.
In order to ensure that you team up with the best processor, you will first need to understand clearly how credit card processing fees work. This article will explain the intricacies involved in credit card processing fees so that you can choose the best solution for your business and pay an affordable fee for the service rendered.
Ideally, a good pricing model should have the following features:
- It should not cause a headache for you
- It should be a monthly fee
- There should be no additional markup or fees set and
- Rates should be less.
Therefore, when you select one for your business, make sure that you select a provider that follows a pricing model that suits the needs and purpose of your business. This is necessary so that you make sure that you do not overpay the credit card processing company.
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The Primary Factors
There are basically four primary factors that will affect the fees for credit card processing that you will have to pay when you charge a credit card. These factors are:
The Interchange Rate:
This is typically the rate that all credit cards issuers such as Visa, Master Card, American Express, and Discover will charge you for processing a credit card payment. This interchange rate may vary from one type of credit card to another.
That means the interchange rate of a reward or gift card will be distinctly different from a corporate credit card. These rates are actually non-negotiable as these are the rates that the merchant account providers actually pay to the credit card issuers.
The Merchant Account Provider Fee:
You will typically need to have a merchant account so that you can connect to the credit card networks in order to process the cards. Ideally, the merchant account providers charge a fee for their service in addition to the interchange rate in order to make money.
However, these fees are negotiable and normally based on the sales volume as well as the type of business. Therefore, different businesses may pay entirely different rates even when the merchant account provider is the same.
How the Card is Processed:
This is another factor on which the fees charged by the merchant account provider fee may vary. If you carry out in-store transactions where the customers typically swipe their own cards, there is the lowest risk of any fraud.
Therefore, this type of credit card processing method will have the lowest fees. However, for any online transactions made through website orders or any keyed-in transactions made over phones or computers, there is a high level of risk fraud and therefore it will generally carry higher fees.
Setup and Monthly Fees:
There may be a few merchant account providers that may charge you a setup fee as well as an ongoing monthly fee in order to provide support and security or PCI compliance. In addition to that, there may be a few other credit card processing companies that may charge account cancellation fees, which can be very high, when you want to change providers.
You will even see when you visit reliable and reputable sites that there are no setup or account cancellation fees. Ideally, these service providers are very popular and a no-risk option, and especially beneficial for small businesses.
You can see that it is the interchange rate that is not negotiable and that is the basic factor that will determine the credit card processing fees. Therefore, everything comes down to the type of merchant account provider you choose.
Setting Up Credit Card Processing Fees
There are different ways in which merchant account providers set their credit card processing fees. The interchange rates are typically set by credit card issuers. As for the others, merchant account providers act as the middlemen between you and the credit card companies. It is their fee that you actually pay while they process your credit card.
There are usually three different types of fee structures that merchant account providers follow while setting the fees. These are:
Flat-Rate Credit Card Processing Fees:
This, just as the name suggests is a fixed amount that you pay irrespective of the type of credit card being processed. It may range from 2% for in-store purchases and 3% for online purchases. The advantage of this type of pricing model is it is simple and you know exactly the amount that you will have to pay every time you process a credit card, irrespective of its type.
Interchange-Plus Credit Card Processing Fees:
This is a specific type of pricing model followed by the merchant account providers wherein you will need to pay a fixed amount over and above the interchange rate. This rate is very nominal often within 0.5%.
If you know a bit of math and consider a few examples you will see that with interchange-plus pricing you actually get to pay a lower amount as fees as compared to a merchant account provider that charges fees at a flat rate. Choosing an interchange-plus plan will save you a lot of money when your sales volumes reach a certain level, though the calculations may be a bit difficult to understand.
Tiered Credit Card Processing Fees:
Lastly, in tiered pricing, the merchant provider may add fees to the interchange rates. These are not fixed and therefore it varies mostly depending on the type of card being processed. Typically, this type of pricing involves irregular add-on fees and inexplicable billing statements. You will never know how much you are being charged exactly.
Therefore, research service providers to make the right choice. Ideally, there should be no startup, monthly, or cancellation fees associated. This will ensure you have a risk-free option.
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