What Are Credit Card Merchant Fees? The Different Types
By Space Coast Daily // August 12, 2022
If you sell firearms, you probably wonder about firearm credit card processing fees. You are not quite sure what the fees are, but you have heard about them. If you don’t want to pay fees you don’t understand, take a closer look at credit card merchant fees to make the best decisions for your firearm and optics business.
What Are Credit Card Merchant Fees?
Credit card merchant fees are the costs associated with processing credit card payments. These fees are typically a percentage of the total transaction in addition to a fixed fee. For example, a merchant might be charged a fee of three percent of the total transaction plus a $0.30 fixed fee.
The essence of these fees is to reimburse the credit card issuer for the costs associated with processing a credit card payment. These costs include fraud prevention, customer service, and transaction monitoring.
There are different types of merchant fees, including:
Interchange fees are the fees charged by the credit card issuer to the merchant for each credit card transaction. These fees are set by the card networks (Visa, Mastercard, etc.) and are typically a percentage of the total transaction plus a fixed fee.
Interchange fees vary depending on:
■ The type of card used: Rewards cards, business cards, and premium cards typically have higher interchange fees than basic consumer cards.
■ The card network: Interchange fees are generally higher for American Express and Discover than for Visa and Mastercard.
■ The size of the transaction: Interchange fees are typically smaller for small transactions (< $15) than for more significant transactions.
■ The merchant category: Interchange fees are typically higher for businesses that sell high-ticket items (e.g., electronics) than for businesses that sell low-ticket items (e.g., grocery stores).
■ Country: The country where the transaction takes place can also impact interchange fees. For example, interchange fees are typically higher in the United States than in other countries.
Risks That Influence Interchange Rates
Interchange fees are influenced by a plethora of risks, including:
■ POS vs. CNP Transactions: POS (point-of-sale) transactions are generally considered less risky than CNP (card-not-present) transactions because the cardholder is present to provide a signature or PIN. As such, POS transactions typically have lower interchange fees than CNP transactions.
■ Credit or Debit Card Type: Credit cards are generally considered riskier than debit cards because they can result in chargebacks (when a customer disputes a charge and requests a refund). Credit card transactions typically have higher interchange fees than debit card transactions.
■ Card Network: The four major card networks (Visa, Mastercard, American Express, and Discover) have different levels of risk. For example, American Express is known for having a higher level of fraud than Visa. As a result, American Express typically charges higher interchange fees than Visa.
■ Merchant Category: Some merchant categories are considered to be at higher risk than others. For example, businesses that sell electronic goods are at a higher risk of fraud than businesses that sell grocery items. Businesses in high-risk categories typically pay higher interchange fees than businesses in low-risk categories.
■ Size of Transaction: Smaller transactions are generally less risky than more significant transactions because the amount of money at stake is smaller. Small transactions typically have lower interchange fees than large transactions.
■ Card Issuer Risk: The card issuer (the bank or credit union that issued the card to the customer) also plays a role in determining interchange fees. For example, issuers with a history of high levels of fraud will typically be charged higher interchange fees than issuers with a low level of fraud.
■ MCC Codes: MCC codes are four-digit codes assigned to businesses by credit card networks. These codes are used to classify businesses by merchant category. The MCC code of a company can impact the interchange fee that the business pays.
Payment Processor Fees
In addition to interchange fees, businesses must pay fees to the company that processes their credit card payments (known as a payment processor). These fees typically cover the cost of:
■ The payment processor’s technology: It includes the software and hardware used to process credit card payments.
■ The payment processor’s customer service: It includes the call center support that is available to help businesses with any questions or problems they may have.
■ Risk management: It includes the fraud prevention and chargeback protection services that the payment processor provides.
Payment processor fees are typically a percentage of the total transaction plus a fixed fee. For example, a typical payment processor fee might be $0.30 + 0.05% of the transaction amount.
Assessment fees are charged by the card networks (Visa, Mastercard, etc.) and are used to fund various programs, including:
■ Cardholder benefits: They include things like rewards programs and fraud protection services. Additionally, a portion of assessment fees is used to cover the cost of issuing and reissuing cards.
■ Merchant support: It includes things like developing new payment technologies and providing customer service for businesses.
■ Operations: They include the costs associated with running the card network, such as salaries, rent, and marketing expenses.
These fees are based on monthly transactions and not on individual transactions. For example, if your business processes $100,000 in credit card transactions per month, you might be charged an assessment fee of $250.
Other Credit Card Merchant Fees
Apart from the three fees outlined above, other credit card merchant fees include:
■ Acquirer Processing Fee (APF): The acquirer processing fee is charged by the acquirer (the bank that provides businesses with merchant accounts) and is used to cover the cost of processing credit card transactions.
■ Fixed Acquirer Network Fee (FANF): These are monthly fees charged by the acquirer. They are used to cover the cost of providing businesses with access to the credit card network.
■ Network Access and Brand Usage (NABU) Fee: The network access and brand usage fee is a charge assessed by the card-issuing bank for allowing a merchant to accept their card. This fee is also sometimes called an interchange or acceptance fee. The network access and brand usage fee is usually a percentage of the total transaction plus a per-transaction fee.
■ Kilobyte Access (KB) Fee: The kilobyte access fee is a type of merchant fee that the credit card company charges to the merchant for each kilobyte (KB) of data that is transmitted to them. This fee is typically assessed on a per-transaction basis and is generally passed on to the customer in the form of a surcharge.