Understanding Credit Card Processing Fees

Paying for credit card processing fees is inescapable, especially if you manage a small business that deals with credit cards. But because there aren’t any credit cards with no processing fees, it is better to understand how they work in case there are any costs to dispute. Luckily, they aren’t too complicated.

Cracking down on credit card processing fees

Firstly, credit card processors are the financial middlemen for the customers and the merchant. Other players involved are the credit card associations that manage credit cards, merchant account providers that manage the sales and support for credit card processing, and credit card issuing banks.

The cost of offering credit card processing

How much is credit card processing fee, usually? That varies, but we can break down the costs for you. The biggest chunk of the processing fee for credit cards is the transactional fee. For the average credit card processing fee, here is the breakdown:

The issuer, or financial institutions that issue credit cards, takes an interchange fee. An interchange fee is the fee charged per transaction and is the heftiest part of the total transactional fee. It is usually composed of a flat fee and a percentage of each transaction’s total amount. In addition to depending on sale amount, interchange fees vary by industry and type of card used, too.

Your merchant bank, or companies that manage the processing of the credit card. They charge a markup fee to profit from your income. Some processors will charge modestly, but others won’t — they’ll even try to hide the markup price you are paying them with unnecessarily technical terms and charts. Markups are the only assessments where you can negotiate the costs.

Moving on from the processing fee credit card companies charge, here are additional flat fees. These are at a set price. Here’s a summary of them:

– Terminal Fees: which apply if you have a physical store. If your business uses online credit card processing no monthly fee in this category should be charged.

– Payment Gateway Fees: This is a payment processing fee for credit card for e-commerce businesses.

– PCI (Payment Card Industry) Fees: for compliance to PCI standards

– Annual Fees: to cover providers’ services

– Early Termination Fees: An early termination fee, or early cancellation fee, is charged when a merchant end their credit card processing contract before the end date they previously agreed on. These fees, which are assessed by the merchant account providers, usually cost between 100 to 500 dollars.

– Monthly Fees: to cover costs of having call centers

– Monthly Minimum Fees: If you’re a merchant that reaches transaction goal amounts for the period, no monthly fee credit card processing charges should appear.

– Statement Fees: for the cost of printing and mailing credit card statements. These can be bypassed using e-statements.

– IRS Report Fees: for reporting information on transactions to the IRS

– Online Reporting Fees: to provide online statement.

– Network Fees: which includes the FANF (Fixed Acquirer Network Fee), charged when customers are present when transactions are carried out

In summary, a typical credit card processing fee consists of transactional, flat, and markup fees.

Pricing models

The four most common ways of pricing for merchant accounts include the tiered pricing, interchange-plus, subscription, and blended models.

The tiered model categorizes credit card transactions into 3 types: not qualified, qualified, and mid-qualified. The rates for the qualified tier are lowest, while those of the not qualified are highest.

A “qualified” transaction depends on whether it has met the processor’s criteria for the category. Note that some processors will take advantage of this system to make complicated plans to charge extra fees.

The interchange-plus model is the most transparent of the four. It lists each wholesale fee and exactly how much they are charging.

The subscription model is fairly similar to the interchange-plus model. Instead of paying a markup of a certain portion, you just pay a small transaction fee. This is perfect for merchants with large transactions while maintaining transparency.

The blended model is similar to the tiered model but all tiers have the same transaction fee and rate. It’s great for low-volume businesses. Processors that use this model usually don’t charge a monthly fee, which can even out the high cost of transactions.

Some wonderful alternatives to a credit card with no processing fees

While there are no options for no-fee credit card processing, there are multiple low fee credit card processing options. Here is a short credit card processing fee comparison:

If you’re looking for a cheap credit card processing no monthly fee, TSYS Merchant Solutions, Flint, and Paynet Systems are the top three credit card processors with no monthly fees.

If you’re looking for a payments provider with lowest fee credit card processing by month, Payline Data is a good option. They offer a plan that costs just $5 a month.

The best credit card processor for small businesses overall is Flagship Merchant Services. They offer a low fee of 19 to 21 cents per transaction, no termination fees, and great customer service. Flagship is also the best processor for credit card no processing fee on an annual basis.

If you’re looking for credit card processing for small business no monthly fee required, consider using Square, who can convert your mobile device into a point of sale with the free plastic credit card reader phone plug in they provide. It’s easy to use and only chards 2.75% per swipe. It’s the best processor for mobile devices.

The best credit card processor for low-volume businesses is PayPal, which offers a 2.2% to 2.9% charge, plus 30 cents, per transaction.

The best credit card processor for online businesses title goes to Stripe. They charge 2.9% and 30 cents per transaction. Their pricing is transparent and Stripe is very easy to use.

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Published February 18, 2016
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