A Guide to Fees and Costs for Credit Card Processing Businesses

If you're thinking about accepting credit cards as a form of payment for your business, you may be wondering what types of fees and costs come along with it. Learn about those costs and how you can reduce them.

This Guide provides a step-by-step approach to interviewing potential clients, tracking client information, calculating resource-based fees, structuring fees, writing effective fee proposals and calculating charge-out rates. It also addresses common contractual terms and conditions, commercial contract reviews and a variety of other topics.

Credit Card Processing Fees

Credit card processing fees are a key component of your business's overall financial health. These costs can range from 1.5 percent to 3.5 percent of each transaction's total, and they make up the largest part of your monthly payment processing expenses.

The amount of your fees depends on the type of cards you accept and the network you use, as well as how your transactions are processed. Getting the most out of your processing fees will help you grow your business and stay competitive with other merchants.

Interchange rates are set by the networks (Visa, MasterCard, Discover, and American Express) to cover the cost of processing transactions for credit cards. These interchange rates vary by card type, network level, and even brand.

Businesses that process a high volume of credit card transactions can save money by switching to an interchange-plus pricing model. This model allows you to calculate your interchange rate based on your average ticket size and the type of cards you accept.

You can also lower your fees by using fraud-prevention tools, such as the CVV or AVS match. Using these tools can reduce your interchange rates by up to 5%.

AVS matching is a common tool used for e-commerce credit card processing, but it's also available for card-present transactions. AVS is a way to verify the cardholder's billing address, and it typically costs less than a traditional swipe or tap transaction.

Many credit card processors will offer this service for a fee, and it's typically prorated on your monthly statement to help spread out the costs. Regardless of how you pay for this service, it's worth it to keep your fraud costs down and protect your customers from fraudulent charges.

In addition, you should ask your processor about any nonstandard fees that you may be charged. These fees are often negotiable, and a few companies will give you discounts or waive them altogether.

You can also get a discount on your card processing fees by using a flat-rate or tiered pricing plan. This option can save you up to 30% compared with an interchange-plus plan, so it's worth comparing the options.

PCI Compliance Fees

The Payment Card Industry Data Security Standard (PCI DSS) is an industry-wide compliance requirement that all merchants must comply with. These standards are created by credit card brands such as Visa, MasterCard, American Express, Discover and JCB International to help prevent payment card fraud and identity theft.

The PCI DSS is in place to help merchants protect their customers’ sensitive personal information, including account numbers, expiration dates, names, addresses and more. It also reduces vulnerability to hackers.

In order to be PCI compliant, merchants must complete a Self-Assessment Questionnaire and keep it updated. The assessment will test their networks and identify any gaps in their security. This process can be a lot of work, so some providers will offer consulting services to help you complete the assessment.

Depending on your business’s level of compliance, you may need to hire an approved scanning vendor and a consultant to help you complete the assessment. Many companies can offer this service, so ask about it when shopping for a new provider.

A merchant’s PCI compliance fees vary from provider to provider and will often be listed on the monthly payments they receive. Some merchants will even be billed for this fee in addition to their regular processing fees, so it’s important to make sure you understand what exactly your provider is charging for this service.

One of the most common mistakes small businesses make when it comes to their credit card processing is failing to check their monthly statements carefully. This can lead to some unpleasant surprises when they find out that they have been hit with a PCI non-compliance fee.

These fees can add up to hundreds of dollars a month and can be an expensive burden for small businesses, especially if you don’t take the time to read your statements carefully every month. Fortunately, there are ways to avoid these fees.

Luckily, the National Merchants Association offers a comprehensive, affordable PCI Compliance program that helps you become compliant while cutting your credit card processing costs. It’s a great value that’s easy to use and will save you money in the long run!

Interchange Fees

Interchange fees are a key element in credit card processing costs. They’re set by the credit card networks (Visa, Mastercard, Discover and American Express) and are non-negotiable. They’re based on a percentage of the total charge in a transaction. These rates typically update every April and October, so be sure to review your current processor’s interchange rate and payment structure regularly.

Interchange is a fee that a merchant’s bank (the acquirer) pays to a credit card issuer’s bank for each transaction. It helps banks cover their operation costs and fraud risk when they accept payments from consumers. It also enables banks to provide a fair and balanced payments system for merchants, governments and consumers.

The level of risk in a transaction determines the interchange rate. For example, if a merchant accepts a debit card that has a low risk of fraud, the interchange rate is likely to be lower than for credit cards.

There are a number of factors that can impact your interchange fee, including your volume, the type of transaction and whether you’re a face-to-face or online business. Some of these factors can be managed through a process called interchange optimization.

Another option for lowering your interchange costs is switching to a payment service provider that offers Interchange++ pricing, which gives you a transparent breakdown of your payment costs. This allows you to easily tailor your marketing and promotions to encourage customers to use specific payment methods, which can lower your interchange fees.

Larger retailers often adopt Interchange++ pricing because it provides total transparency into their payment costs. This can help them better tailor their marketing to encourage customers to use particular payment methods, which can lead to more sales and higher profits.

In addition, Interchange++ offers a variety of services that can reduce your overall interchange costs. Some of these include interchange optimization, recurring transaction pricing, and curated plans.

You should always choose a credit card processing solution that aligns with your unique needs. This is important because interchange fees are not negotiable and will impact your bottom line. If you’re a small- to medium-sized business, it’s best to look for a scalable, flat-rate plan that suits your business’s specific needs.

Merchant Account Fees

The merchant account fees you pay will depend on a number of factors, including your business model and how much credit card processing you do. For example, if your customers use their credit cards to make purchases, you will have to pay an interchange fee and other fees based on the type of card used.

You may also have to pay a PCI compliance fee to comply with the payment card industry’s data security regulations. This can help protect your company from fraud and identity theft, but it’s important to understand exactly what it costs before signing up.

Some payment processors offer a tiered pricing plan that charges different transaction rates for different types of cards. This is ideal for businesses that accept a wide range of cards or that sell products in multiple categories.

Tiered pricing plans can help your business save on interchange fees, which is a portion of each purchase that the merchant service provider (MSP) charges on your behalf. However, they can be difficult to budget for if your business’s sales fluctuate widely from month to month.

Other common merchant account fees include gateway fees, monthly minimum fees and PCI compliance fees. You should always choose a credit card processor with transparent fees and a clear pricing structure that fits your business’s needs.

One way to cut down on merchant account fees is to prevent chargebacks. This means addressing and resolving credit card disputes before they become chargebacks. This can reduce your credit card costs and increase your revenue, as well as your reputation.

Another option is to negotiate with your credit card issuer and pay an interchange discount rate, which is a percentage of the sale that the merchant service provider (MSP) negotiates with the credit card company. This fee will vary depending on the type of card used and your business’s sales volume.

Many companies offer a combination of a per-transaction rate, a flat fee and incidental fees. The transaction rate is the amount you pay each time a customer pays with a credit card, while the flat fee is a fixed percentage of your sales and the incidental fees are any fees that the MSP charges in response to specific actions, such as chargebacks.