There are a number of factors that go into calculating credit card processing fees. Understanding those can help a business determine what they should pay, and what they can expect from payment processors in return.
Credit Card Swipe Fees
Swipe fees, also know as interchange fees, account for the largest expense when accepting credit cards. These fees are set by credit card companies, and typically range from 1.5 percent to 3.5 percent. The amount a business pays is determined by factors such as what type of business it is, the transaction volume, and which types of credit cards are accepted. Standard cards are generally charged a lower rate, while rewards cards cost more and business/corporate credit cards are at the higher end of the fee scale. Another factor is whether the transactions are processed by entering the data manually. Credit card companies typically charge an interchange fee of around 3.5% for manually keyed-in transactions.
Fees charged by processing companies can vary from provider to provider, and often include everything from the cost of leasing credit card terminals to monthly charges to ensure that merchant accounts are PCI compliant. There may be miscellaneous fees for issuing monthly statements or reporting pertinent financial information to the IRS. Some processors tack on a monthly fee if the business doesn’t generate a minimum amount of credit card transactions, and businesses may be hit with a fee if they cancel their contract with the payment processor. Other charges may be incurred if the merchant has chargebacks as a result of a dispute with the cardholder.
Pricing Models for Processing
Processors may also offer merchants three different fee structures: tiered, flat-rate, and interchange-plus. Tiered pricing varies from high to low, with the highest rates for transactions involving higher swipe fees, like corporate cards and rewards cards. Lower fees apply to merchants accepting non-reward credit cards and debit cards. There’s also flat rate pricing, where the merchant pays the same rate when transacting rewards, debit, corporate, or standard credit cards. This model is especially common with processors like Square and PayPal. The most preferential pricing, interchange-plus, charges the merchant only the credit card swipe fee, plus an additional fee for the services of the processing partner. B2B and government agency and public sector transactions may also qualify for a lower rate.
No Fee Credit Card Processing
However, the most favorable credit card processing fees involve legal surcharging – which results in zero fee merchant processing. That means the business never pays a swipe or interchange fee. Since those are the highest fees involved when processing credit card transactions, the savings are substantial. Almost all states now allow surcharging, which can be totally automated. Businesses that partner with a payment processor offering that system don’t’ pay the hefty percentage to credit card companies, but always retain all of those profits. That makes no-fee credit card processing an extremely popular option worth investigating.
Before Choosing a Payment Processor
Since there’s no fixed average cost, because all processors charge different amounts, due diligence and comparison shopping is important. Also, keep in mind that pricing isn’t the only criteria when selecting a payment processor. Ask detailed questions. Get clear answers regarding all of their fees, and check their track record of success, security, technological expertise, and responsive customer service.