Credit card processors have earned disrepute for levying fees under many pretexts and attempting to swindle the customers. Same is also true for merchant account processing. But one needs to realize the fact that charges and fees are a source of revenue for them. By being knowledgeable about various fees can help you appreciate and understand better the credit card processing fee structure. To educate yourself about credit card processing fees here is a list of various types of fees that are usually charged by card processors:
1. Application Fee.
You pay this upfront at the time of filling out the application for the merchant account service but is normally not levied by reputable companies. Try avoiding this fee as far as possible.
2. Start up Fee.
This is the fee taken for setting up the credit card processing account. It is usually in the range of $25 to $35.
3. Statement Fee.
This has to be paid if you want to receive detailed account activity statements at the end of each billing cycle. These list out valuable information like the number of transactions processed, the time and dates of these transactions etc. This is a monthly fee in the range of seven to ten dollars.
4. Minimum Monthly Fee.
This is charged to ensure that your account generates revenue for the card processing company even if there are no transactions or if they are below a certain limit. This is also called ‘monthly minimum not met’ charge.
5. Discount Rate.
This is the most important of all the credit card processing fees imposed for accepting credit cards and is a percentage of each transaction processed. It normally lies in the range of 1.5-2 percent of each transaction. You may have to pay a higher percentage if yours is a high-risk business.
6. Charge back Fee.
You are liable to pay this fee only if you see a large number of charge backs. Typically, a specific number of charge backs are allowed in a month before this fee is levied.
7. Gateway Fee.
You need to worry about this only if you will accept payments over the internet. To facilitate transactions over the web, a credit card processing firm needs to have basic web infrastructure in place including a shopping cart function and/or a portal that allows buyers to make and monitor payments.
8. Termination Fee.
This fee is applied for early termination of the contract. Normal contract periods are between one to three years. The fee ranges from one hundred to three hundred dollars. However, not all vendors collect this fee.
As a general rule of thumb, accepting credit cards from customers should cost around 2% of total receipts. This figure is affordable enough for the businesses to accept credit and debit cards as well as large enough for the card processing vendors to profitably run their business. Any vendor with fees lower than this may sound enticing but should be regarded very carefully as it is usually not worthwhile for the service providers to charge any lower than that. Be on the lookout for hidden credit card processing fees and charges if the offer looks too good to be true. Review the contract carefully including all the footnotes and fine print.
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.
In this age and day, a good number of people do not want to carry liquid cash in their pockets, purses, or wallets. As a wise entrepreneur, adding credit cards as an acceptable mode of payment can greatly improve your sales and returns on investment. However, it is important to understand generally how credit cards work before taking the huge step. Since there are different types of credit cards, merchants, and payment processors, the associated fees also vary a lot. In addition to considering the security and convenience of transactions, the rates are an important aspect to look at before introducing credit card payment as an acceptable method in your business. Below are a few things you should know about credit card processing fees, what they constitute and how they work.
Components of Credit Card Processing Fees
The two major components of credit card processing fees include an inquiry fee and a percentage of the total transaction amount. However, there are also other fees associated with credit card processing services depending on the merchant you sign up with. For instance, some payment processing companies charge an initial sign-up fee, monthly account fee, and so on. Some companies also induce an opt-out rate or early terminal fees. Other associated fees may include reporting fees, statement fees, network fees, monthly minimum fees, gateway payment fees and so on, which are together referred to as flat fees. Again, these may vary from provider to the other.
Main Types of Credit Card Transactions
Just like it is with debit cards, there are two major types or categories of credit card transactions. These include the following.
• Swiped Transactions
• Manual Entries
For swiped transactions, the consumer presents his or her credit card when paying for their purchases or service, which is then swiped physically through a POS terminal for the transition to be processed. For manual entry transitions, on the other hand, the details of the card are manually entered or keyed in for processing. These are either internet-based or mobile phone-based transactions.
Choose Your Merchant Company Wisely
The best way to save on credit card processing fees is to choose your merchant or credit card processing provider wisely. It is important to carefully look at the fees and rates a provider will charge you for subscribing to them since these will directly eat up a portion of your profits. When doing this, also consider digital apps and e-wallets as an alternative to credit card processing terminals if and where you can to keep your costs lower. Again, it is important to note that some credit card fees are negotiable. For instance, transitional percentage rates can be negotiated between the business and the provider. However, you stand a better chance of getting a good deal if you’re sure of a higher customer base paying using credit cards. In other words, the higher the amount of credit card transactions, the higher the chances of paying lower credit card fees.
Whichever merchant account provider you choose, be sure to stay on the lookout for hidden charges. Advisably, consider working with a reputed provider that has been in business for a considerable amount of time.