Being a merchant means you will likely be accepting credit cards as forms of payment. Regardless, the transaction fees can easily make your profits dwindle and become difficult to keep the doors open. On average, the processing fees from credit cards can be as low as 1.5% or as high as 3.5%. Knowing this, it is important to know where these fees originate from so that they can be minimized as much as possible.
Processing Fees Associated With Credit Cards
When a credit card is processed, there is a cost involved with the transaction as well as more than one type of fee. The fees normally associated with credit card processing fees include the interchange fee, processor markup, and assessment fee. Below, we explain each type of fee and give you an idea of its overall cost.
The Interchange Fee
The interchange fee involves several factors that are associated with the transaction.
The Credit Or Debit Card – The transaction involving the debit card will have a lot less risk involved due to the funds being directly withdrawn from a checking account. With credit cards, the bank is loaning funds that are paid back within a certain amount of time.
Merchant Category Codes – The major brands of credit cards utilize these category codes to have the business classified by the services or goods they are providing. There may or may not be multiple category codes, which will depend on how many products you have available.
Type Of Credit Card – A credit card that offers rewards such as cashback will be a lot more in cost so that the perk will be offset. These cards can cause big problems when a pricing plan is tiered. Oftentimes, the transaction will be downgraded to a tier that is unqualified and has fees that are the highest.
Size Of The Transaction – When the transaction is large in size, there is a lot more risk involved. When the risk is high, the bank issuing the card will include a high fee for processing. Many other factors are used to decide whether transactions are small or large in nature, which means there is no way of knowing which type it is until it gets processed.
Credit Card Present Or Not Present – Transactions for retail purposes involve whether the card can be verified by the merchant so that fraud can be deterred. If the transaction is online though, the data for the cardholder can be harder to identify. This is why a fee for not-present transactions will be higher.
Although the assessment fee is the smallest fee out of all of the fees used for processing, the network assessment fee is the more expensive fee out of all of these.
The fees used for assessment usually represent fees for licensing and are paid to the brand of a credit card. The transaction fee amount can range from a low of 0.13% or be as high as 0.15% and is determined by the card issuer.
Assessment fees can be combined with the interchange fee to comprise a single amount while it gets passed to the bank for clearance.
The Markup Fee and Wholesale Fee
The processing fees are split into two types: a markup and a wholesale fee. The wholesale fee includes all of the charges that you will pay back to the issuing card company. The markup fee is what you pay to the processor for processing the transaction.
Even though the wholesale fees do not differ from one person to the next, the transactions still vary from one to another. The factors outlined above will have an impact on the transaction amount that will be paid.
What the Processing Cost is For Credit Cards
The cost of processing credit card payments is determined by the services provided by the merchant you use. The fee may involve an interchange and other fees combined as one and a fee per transaction. Regardless, the fee amount may be as low as $.95 per month to as much as $20 per month. Per transaction, the fee can be as low as 0.18% or as high as 0.50%.
The Bottom Line
When you have a business that accepts credit cards as a form of payment, then you are now aware of what fees go into the process. The good thing is that the fees will not hurt your business as much when you compare yourself to a business that accepts only cash. By shopping around, you will be able to find the lowest fees for your business.