Whenever a purchase is made with a credit card, it incurs various fees as it goes through the process of being paid. Since there are various different parties involved in the processing of a credit card transaction and the information and funds change hands so many different times, some of the parties involved end up charging one another for their part in the transaction process.
The biggest source of credit card processing fees is the interchange fee. An interchange fee is paid to card-issuing banks (which are the banks that the credit card companies or types belong to). The banks of credit card companies (such as Visa or MasterCard) determine how much they want to charge a merchant for being able to accept their credit card. Typically this charge is a percentage of the purchase plus a flat rate. For example, the interchange fee that is charged to accept a Visa credit card is 1.51 percent plus 10 cents per transaction.
Other fees charged to process a credit card fall under the category of being considered a “flat fee”.
One type of flat fee is a terminal fee. This is charged to merchants that have in-person businesses for the physical swiping or inserting of a credit card. Merchants have the option of either buying or leasing a terminal from their payment processor company, but may find it more-cost effective to purchase the terminal in the long run. Online businesses receive a similar fee, but theirs is known as a payment gateway fee instead, which is charged whenever a payment is processed through eCommerce.
There are also annual fees, for using the services of a provider, and if a merchant decides to end their contract with a provider early, they may also be charged an early termination fee by the company.
Finally, there are incidental fees. One of these is specific to online businesses and merchants, which is the Address Verification Service, also known as the AVS. This is a fee placed on every single online transaction in order to verify that the information that a customer provides is correct.
Customers also have the ability to dispute a charge to their credit card when it appears on their bill. If they file a complaint about a merchant or a business with their bank, that merchant will be charged an incidental fee for the information retrieval request as this complaint is investigated by all of the different parties involved. If the customer’s request is approved and they get their money back, the merchant will also be charged a chargeback fee in addition to the retrieval request fee, as well as losing the money from the initial transaction.
Ultimately, all credit card providers and payment processors have different types of charges and fees that a business may incur while processing a customer’s payment, but it is important to stay aware of and on top of these fees at all times.