Credit card processing fees are a part of modern business, especially in the e-commerce market. Careful attention to monthly processing charges can help companies identify areas of opportunity, which is the first step in cutting business expenses and improving the bottom line.
It’s essential for business owners to learn how payment processing works and the kind of charges that accompany it. Three key fee categories are associated with a credit card transaction rate: payment processing, interchange, and assessment. These fees vary depending on the type of card used, the card network, and the merchant category code (MCC), which classifies a business according to the goods or services it provides.
Payment Processor Fees
The payment processing company is the financial institution that completes the transaction after a customer uses their card. There may be a direct relationship between the merchant and processor, or a third party could manage transactions on the financial institution’s behalf. Payment processors charge a percentage of each credit or debit card transaction plus a flat fee.
Processing fees range from 1.3 % to 3.5% per transaction; for example, $1.50 to $3.50 for a $100.00 sale. Payment processors also charge account service and incidental fees that apply to a number of circumstances. They assign a markup that covers operating expenses and profit. The payment processor offers the only opportunities for negotiation among the three categories and not many.
Interchange Costs
Card networks facilitate credit and debit transactions between the merchant and the card issuer. Card networks such as Mastercard, Visa, American Express, and Discover partner with card issuers and set what are known as interchange or swipe fees. These are firm, non-negotiable costs. Interchange fees offset fraud risk and handling charges, and payment processors incorporate them into the rate they assign to the merchant. The average interchange fees per transaction for the four major card networks are:
- Visa: 1.29% plus $0.05 to 2.54% plus $0.10
- Mastercard: 1.29% plus $0.05 to 2.64% plus $0.10
- Discover: 1.53% plus $0.05 to 2.53% plus $0.10
- American Express: 1.58% plus $0.05 to 3.3% plus $0.10
Assessment Charges
Card issuers approve or deny credit and debit transactions. Like payment processors, the card issuer charges a percentage of each transaction plus a flat fee. These assessment fees pay for the processing costs on the card provider’s network and fund the card brand. They tend to be lower than interchange rates but are also non-negotiable.
With card transactions carrying so much obligatory cost, it might seem impossible to reduce fees. It is possible, and here are a few ways to do it.
- Shop Around
Research credit card processing companies and their rates, fees, and equipment costs. Speak to a representative to gauge the possibilities for negotiation.
- Leverage volume
A payment processor wants nothing more than a bounty of card transactions. Make volume the focal point of the fee negotiation process. Demonstrate how your projected business growth will yield higher transaction volume and value for the processing company. This may secure a better rate for your business at the outset. Revisit the conversation with the payment processor regularly to ensure the best deal for your company.
- Reduce risk
High-risk merchants carry higher processing fees. Swipe credit cards instead of keying numbers to minimize fraud risk whenever possible. Provide information such as the billing zip and security code to validate the purchase and protect the customer. Verify the billing address for online transactions and add an SSL certificate to authenticate your site’s identity and create an encrypted connection. These steps can lower transaction rates, limit chargebacks, and lead to savings.
- Process transactions promptly
Adopt a POS (point-of-sale) system that uses daily batch processing. Regular batching reduces processing fees by limiting the number of transactions to a 24-hour period. Processing transactions every few days is less cost-effective and leads to higher charges.
- Talk to an expert
The best way to adopt savvy credit card processing practices is to consult an expert who understands the terms and is familiar with the players. A little professional advice can give merchants an edge with processors and save time, energy, and money.
Because of their convenience and ease, credit cards are the most popular payment method. Card payment processing costs can add up and take away from profits. Merchants owe it to themselves and their businesses to stay vigilant about their processing vendors and their terms, rates, and fees.
