The True Cost of Processing Credit Card Payments

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For small businesses, accepting electronic payments online, in-store, or through mobile payment processing has become standard practice. The vast majority of businesses will need to accept and process credit cards to keep up with public demand. Unfortunately, the cost of credit card processing can add up quickly for new businesses. The first step towards keeping these credit card processing costs down is to understand the true cost or payment processing.

Today, we will take a look at how merchants are charged for credit card transactions, examine some hypothetical examples of processing fees, understand how merchants and credit card companies charge for transactions and finally give some tips to reduce incurred costs.

Calculating Credit Card Processing Fees

There are a handful of ways in which merchants may be charged for accepting credit card payments. While the methods and terminology can differ from situation to situation, all fees will fall within one of two categories:

  1. Credit Card Processing Rates/Fees

  2. Merchant Account Fees

In this section, we will focus on credit card processing fees from the credit card companies themselves. Typically, the rate from credit card companies will be a percentage of the sale plus a possible small flat rate. These rates change from company to company, and businesses can expect to pay different transactional fees for Visa vs. Discover vs. American Express.

Merchant Account Fees for Credit Card Processing

Merchant Account Fees for Credit Card Processing

In addition to what merchants are responsible for paying to the credit card companies, they must also pay their merchant service provider. This is where the small business owner can take control of his or her rates, fees, and even the way in which the account is billed. Each merchant service agreement will come to its own terms regarding fees, rates, and much more. Merchant service fees generally include:

Scheduled fees: there are certain repeatable fees such as service fees or rental fees which can be scheduled and accounted for overtime. Some agreements even include a subscription in lieu of some transactional fees.

Incidental fees: late fees, chargeback fees, setup costs, and other one-offs are considered incidental fees.

Transactional fees: these are the fees you will see per credit card or debit card transaction. A small amount is typically charged for every electronic payment processed. However, this is dependent on the merchant account pricing model you have chosen.

Examples of Credit Card Interchange Fees and Rates

Examples of Credit Card Interchange Fees and Rates

So what does that look like for a real example? Let’s explore a hypothetical sale from a small business and what that might look like using real credit card processing fees. Here is a common scenario:

  • You are a small business owner with a standard merchant account.

  • Your business processes a sale for $10 and the consumer pays using a Visa credit card (the most widely used credit card network in the world).

  • Visa, as the credit card company and as the credit card network, charges 1.75% + $0.10 flat fee.

  • The merchant is responsible for paying $0.275 to the Visa network.

  • Your merchant services agreement dictates that you will also pay an additional 1.5% to your merchant services provider. This amounts to $0.15.

  • At the end of the day, processing this credit card transaction for $10 has cost your business approximately $0.42 in fees.

How to Reduce Charges for Accepting Credit Cards

How to Reduce Charges for Accepting Credit Cards

The above is merely an example using hypothetical numbers. The good news is that small businesses do have the power to control how much they pay to a certain extent. The first step is to find and partner with a reputable merchant services organization. Many larger merchant services organizations like Square have boilerplate agreements for all business types, sizes, and needs.

Instead, consider working with a merchant services provider which will take the time to get to know you and your business. In this way, you can both determine the best billing options and account features for you. This not only has the potential to save your company money but will also ensure that you will be receiving the benefits and services which you need to stay afloat.

Small Business Payment Processing Services from True Merchant

While it is impossible to avoid processing fees, at True Merchant, we believe in making payment processing as straightforward as possible. That starts with one of our complimentary rate reviews for small businesses. This can be done for businesses just getting started or those who are looking for a change. One of our qualified payment processing professionals will work with you to identify what pricing options best fit your needs and to walk you through the processing fees, fee structure, and how we can best serve you!

Our experienced team offers a wide range of services including credit card payments, debit card payments, NFC payments, payment processing hardware, and much more. To learn more, give us a call or email today so we can discuss how exactly True Merchant can help your business!