Guide to Credit Card Processing Fees

Businesses facing high credit card processing fees may be tempted to go cash-only to boost their bottom line. However, modern businesses will find it almost impossible to run their business without accepting credit card payments.

It’s forbidden for European businesses to charge their customers extra for using credit or debit cards. This means business owners must factor in these costs in other ways or find ways to minimise them whenever possible.

What Are Credit Card Processing Fees?

A credit card processing fee is a cost that a business must pay every time it takes a credit card payment. Merchants are subject to various credit card processing fees. How much you pay will vary depending on the type of credit card used during the transaction and the nature of the transaction.

Which Credit Card Processing Costs Should Merchants Expect?

Understanding credit card transaction fees requires a familiarity with how payment processing works. Knowing which specific fees to expect will also help you anticipate how much your business will spend on credit card processing fees each month.

Your business should expect to pay:

Interchange Fees

An interchange fee is a payment merchants make directly to the card issuer to cover the costs of the transaction. Interchange fees can vary depending on the type of card the customer uses, the transaction amount, and the industry the merchant operates in. E-commerce or online businesses may find they’re charged higher interchange fees as fraud is a bigger risk with online transactions than it is with in-store purchases.

Assessment Fees

Merchants pay assessment fees (also known as association fees) directly to a credit card network like Visa or Mastercard. These fees cover the costs incurred by running transactions through the various card networks.

“Assessment fees” is an umbrella term that encompasses many different fees that fall into that category. The cost of assessment fees can vary significantly depending on which specific fees your business incurs in a given transaction.

The total of interchange and assessment fees are referred to as a “swipe fee.”

Can Changing Merchant Account Providers Reduce Assessment Fees?

Changing your merchant account won’t reduce the assessment fees your business pays. This is because fees are assessed by the card brand, not the merchant services provider. The fees are then passed on to you via your payment processor.

It’s natural to want to reduce assessment fees. However, they’re considered legitimate fees that merchants must pay regardless of where they open their merchant account. That said, some merchant services providers bundle fees into a single fixed transaction fee (potentially alongside a monthly fee for using their services). Your business will still pay assessment fees, but they won’t appear as a line item on your merchant statement.

Payment Processor Fees

Your payment processor will charge a fee to facilitate credit card transactions in your business. Merchant services fees will be charged according to an agreed plan plus possible extras like equipment lease fees.

No business wants to overpay on fees. That’s why choosing a trustworthy payment processing company is a vital decision for your business. Look for the following features when looking for a payment processor:

• The option to pay a fixed per-transaction rate. This makes budgeting easier as you know exactly what percentage of each transaction will go towards fees.
• Excellent merchant services including fraud scrub and chargeback protection, and an integrated global payment gateway included in the price you pay. These features can ultimately save you money.
• PCI level 1 security compliance. Choosing the highest level of security will protect your business and your customers against data breaches and other cyber threats that can cost you dearly.

Can Merchants Pass Credit Card Processing Fees on to Customers?

European merchants can’t pass credit card surcharges on to customers through a direct charge for paying by card. This is because surcharging customers is illegal in Europe. This is true within the European Union and also in some non-EU countries like Switzerland. The law applies to credit card purchases in-store and online and applies equally to national and cross-border transactions.

Credit card processing fees must be considered an everyday business cost just like any other overhead and factored in when pricing your goods or services.

Payment Processor Pricing Structures

Payment processors offer various pricing models that can be favourable to different business types. Research each model to decide which could be most advantageous for your business:

1. Tiered Pricing

Tiered pricing offers different fees depending on the type of transaction run:

• Qualified tier: Debit or credit cards that don’t have a rewards program
• Mid-qualified tier: Cards with select rewards programs
• Non-qualified tier: Credit cards with expansive rewards programs or corporate credit cards

Unsurprisingly, cards in the qualified tier have the lowest rates while non-qualified cards have the highest. Tiered pricing is typically charged as a percentage of the total value of the transaction plus a fixed transaction fee. It can be tricky to track and anticipate costs with this method as the cost to process each card depends on which category it falls into.

2. Flat-Rate Pricing

Merchants pay a fixed percentage and fee for every transaction with flat-rate pricing. The main advantages of this are simplicity and predictability as the merchant doesn’t have to contend with a range of different fees or question unexpected charges on their bill.

Flat-rate pricing is also a great option for companies with an international outlook that welcome different currencies and international credit cards. For example, e-commerce brands with customers across the continent won’t be stung by high credit card processing charges when they achieve a more international customer base.

3. Interchange-Plus Pricing

Merchants pay the swipe fee (including the issuing bank’s interchange fee and the card network’s assessment fee) in addition to a separate markup fee levied by the payment processor or acquiring bank. The swipe fee matches the fees charged by the issuing bank and card network for the transaction.

The amount payable varies depending on the card and transaction type, and the industry. The markup is usually a fixed fee and/or a percentage of the total value of the transaction.

How Can Businesses Lower Their Payment Processing Fees?

Accepting credit cards inevitably incurs some costs. However, merchants can take steps to ensure they’re not paying more than they should for payment processing:

1. Shop Around For More Favourable Rates

Researching your options can save you money. Your current payment processor may not be giving you the best rates possible, may be tacking on extra fees to your monthly bill, or may not be giving you great value for money. Shop around to check that your business is getting the best possible deal.

2. Negotiate with Your Current Processor

Shopping around to see what other processors can offer you puts you in an excellent negotiating position with your current processor. If your current partner doesn’t want to adapt their fees to keep your business, it’s probably time for a change.

Be prepared to demonstrate why your current payment processor should be prepared to negotiate on fees. Show them your importance to their business as a client by presenting data on transaction volume, for example.

If you manage to renegotiate, get your new agreement in writing and check your subsequent statements to make sure you are being charged at the new rate.

3. Use Your Account & Terminal Correctly

Simple mistakes can sometimes prove costly. Setting up your account properly could make a difference. Ensure you provide the correct business information when you sign up. This includes the type of business you have and the types and frequency of the transactions you run. This information could make a difference to your chosen payment processing company.

4. Avoid Unnecessary Fees

Staying on top of what you’re paying for credit card processing is also vital; always follow up on fees if you’re not sure what they are or what they do for your business. Paying fees should be a transparent process. Choose a payment processor with clear pricing that offers an easily understandable breakdown of all their rates and fees.

Bundling, hiding, or adding extra fees you don’t understand should be considered red flags. Always work with a merchant account provider you trust to be transparent and scrupulous with their charges.

Shop Around for the Best Merchant Services Plans

Whether you own an e-commerce store or a brick-and-mortar business, accepting credit cards is essential for facilitating sales. Credit card networks and credit card processors charge fees for their services, but the advantages of accepting credit cards in your business far outweigh any drawbacks.

Shopping around for the best merchant services plan to fit your business, industry, and budget will help you find a tailor-made service with transparent fees and the best possible value for your money. Know which services you require and the average fees involved to negotiate the best deal for your business.