Is It Possible to Lower Your Credit Card Processing Fees?

Businesses that accept credit cards incur various costs. Credit card processing is a necessary investment of almost any company because cards are the most popular payment method. A point of sale that facilitates credit card transactions requires different services working together to ensure a smooth process for buyers.

As the merchant, you have to pay fees for these services. Flat fees, incidentals, and transaction charges are some costs to factor in when picking a payment processor. The type of services you get determines the amount you have to pay. So, before shopping for credit card processing companies, know what works for your business, and what you can afford.

What happens after a customer pays with a card?

A new merchant looking to understand credit card processing fees must learn what goes on behind the scenes. When a buyer inserts, taps, or swipes at a credit card terminal, several events occur. The payment gateway or card reader captures the card information, allowing the payment processor to transmit it to the relevant network, for example, MasterCard.

A request for payment goes from the processor to the network to the issuing bank. If approved, you receive funds from the issuer into your merchant account. Funds are then available in your business account within 1 to 2 days.

Note that when using a payment service provider, like PayPal, the funds move from the issuing bank to the PSP’s merchant account before they are transferred to you. Whether you use a dedicated merchant account or a third-party provider dictates your fees. The two options also cater to different kinds of businesses. Therefore, make sure you pick an appropriate credit card processing solution.

Non-negotiable interchange and assessment fees

Every credit card transaction comes with several standard fees, such as the interchange. An interchange or reimbursement rate is paid to the issuing bank when a cardholder uses a credit or debit card. It is a non-negotiable fee, meaning, whichever credit card processing service you use, it remains constant.

Credit card companies are responsible for setting interchange rates. It’s not easy to comprehend how they calculate them. However, you should be aware of the latest rates because they are subject to change. For instance, Visa and MasterCard release new fees twice annually.

Interchange rates range between 1% and 3%. They vary according to various aspects, including card brand, business type, and card-present vs card not-not-present transactions. The rate includes an assessment fee, which is what the card network gets from every payment.

Card companies have interchange categories with different fees. If a transaction meets the standards of a specific category, it incurs the corresponding charges.

Payment plans

Payment processing companies have more than one way to structure rates. The pricing model you chose determines processing costs. So, if you wish to lower card processing fees, compare pricing plans carefully. A typical rate structure includes negotiable and non-negotiable fees. When selecting a payment plan, consider the types of cards, transaction ticket size, and monthly volumes. This section covers the main payment plans available for merchants.

Tiered plan

Also referred to as bucket pricing, a tiered plan divides different credit card processing fees into levels, with each one charging a different rate. The primary tiers are qualified, mid-qualified, and non-qualified. Categorization depends on the type of card transaction.

Payment processing companies determine this factor. Qualified payments have the lowest prices, and refer to standard debit and credit (no reward) cards. Non-qualified transactions cost the most and might include cards with premium rewards and card-not-present payments

Interchange-plus plan

With this pricing structure, you pay the interchange rate and markup to cover the processing costs. For example, the price for a MasterCard payment might be 0.30% + interchange.

The appeal of interchange-plus pricing is its transparency because you see where the money is going. However, the structure creates complex statements. Another advantage is that if most of your payments fall into a low-interchange category, you save money.

Flat-rate plan

In flat-rate pricing, all the rates are merged to generate one fee. Therefore, all your transactions incur the same charges, whether a customer used a card at a credit card terminal or not. The biggest selling point of a flat-rate plan is that you know the credit card processing fees from the start. A processor takes a percentage of every payment and adds a fixed fee. For instance, you might pay 2.5% + 0.8 per transaction.

Fees and Charges

Apart from interchange and assessment fees, credit card processing costs have other elements. The additional fees range widely and determine the best payment processors for your enterprise. A monthly or statement fee is one common cost. It goes towards account maintenance and customer support. Some providers charge extra for printed or email statements, which can be part of the monthly fee or an individual cost.

Another expense is a minimum monthly fee, the cost incurred to maintain transactions at a specific dollar amount. Businesses accepting card payments must comply with PCI DSS, international standards designed to prevent fraud. A PCI compliance fee is part of the cost of processing card payments. An online business also has to pay for a monthly gateway fee, which might be separate or bundled with the monthly charge. You also have to pay incidentals like chargeback, non-sufficient funds, retrieval requests, and voice authorization fees.

Conclusion – Start an Online Business Today

How you accept payments is one of the crucial aspects to think about when setting up an e-commerce business. Despite the various digital payment options available, credit cards are still the most popular, reliable, and secure choices for buyers. So, you must factor in credit card processing.

E-commerce ventures can pick from a host of payment processors that serve different businesses. Card processing fees are critical determinants when comparing merchant services. Thus, learn how pricing works to help you find affordable credit processing companies for your small online business.

Similar Stories