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What are credit card processing fees?

Editorial Team

4 min read

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Any business owner that accepts credit cards can expect to pay certain fees. These charges can seem complicated, though the more you understand how credit card merchant fees work, the better positioned you are to negotiate better rates or dispute unnecessary charges.

The following is a breakdown of the most common credit card processing fees in the industry:

1. Interchange fees

Also known as base or wholesale fees, these rates are non-negotiable and determined by the credit card associations and issuing banks. They remain consistent across the industry. They include a flat charge (e.g. $0.10) plus a percentage of the transaction amount (e.g. 2% to 3%). Interchange fees make up the largest portion of all credit card processing expenses.

2. Markup fee

This is the “retail” rate your payment provider charges to cover the cost of credit card processing, which include the wholesale interchange costs from the card brands in addition to fees for front-end authorization, back-end settlement, reporting, PCI, and the acquiring bank.  Essentially, the processor’s profit margin is added to the wholesale rate.

3. Assessment fees

These are what credit card associations charge for using their networks. Assessment fees typically range between 0.13% and 0.15% depending on the card brand — i.e., Visa, Mastercard, or American Express.

4. Terminal fees

If you operate a brick-and-mortar store and lease your credit card terminals, you can expect to pay a monthly fee. This is why some merchants prefer buying their credit card readers outright for a low one-time fee.

5. Payment gateway fees

These are similar to terminal fees, but they apply to the eCommerce world. Think of a payment gateway as an online point-of-sale terminal for your business. Some processors may offer this service for free, so be sure to browse first before making any commitments.

6. Annual fee

You may be required to pay a flat annual fee to your merchant account provider — regardless of your transactional volume. This charge isn’t standard across the industry, and providers may negotiate with you.

7. Monthly fee

Some providers charge a flat monthly rate for “account management” or some other related service. This money is usually used to cover call-center costs. It may be hard to negotiate this, but you can always look for lower monthly fees.

8. PCI compliance fee

This charge is different from provider to provider:

  • Some charge a special fee to “keep” your account PCI-compliant. You’re basically paying a premium for protection, however you’re still ultimately responsible for following the security standards to remain compliant.
  • Other providers charge this fee if you “fail” to remain compliant. You’re basically paying a penalty.
  • Others will wave this fee completely and do everything they can to keep your account in good standing.

9. Minimum fees

Your provider may charge a penalty if your merchant account doesn’t process a certain number (or dollar amount) of sales every year. This may be negotiable. Plus, since many providers offer tiered services, you can select whichever account level most closely reflects your sales volume.

10. Early termination fee

If you sign a contract and cancel the agreement, you may be expected to pay a fee. If the merchant services provider does not meet your expectations on technology, support, or security, you may be better off paying the fee and finding a provider that meets your needs and helps your business grow.

11. Paper statement fees

If you receive your merchant account statements in the mail, you may be paying a premium for this service. By switching to online statements, you may be able to cut some costs.

12. IRS reporting fees

Your provider will automatically report all income directly to the IRS (1099-K). This is usually not negotiable.

Cost conscious vs. value conscious

As you examine your processing statements or research new providers, it makes sense to figure out how you can reduce these expenses as much as possible. However, depending on your business, there may be times when paying a premium is worth it to receive the quality, service, and convenient payment options you and your customers deserve. Talk with your provider and design a package that maximizes the benefits and minimizes the costs.

To learn more about our cost-effective credit card processing, contact us today.

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