Credit card processing rates, fees, and costs can be confusing. It’s no wonder that many small businesses don’t know what to expect, and they have to spend much time researching before deciding what credit card processing company is right for them. Below are some things to know:
What Is Credit Card Processing?
Credit card processing means accepting credit cards in exchange for goods and services from your business. When you swipe a customer’s credit card at the register, you process a payment with your processor. The merchant account provider then sends that information to the credit card company (MasterCard or Visa), which verifies that the card is valid and issues an approval code so that the transaction can be completed.
The first thing to understand is that there’s no such thing as “processing.” The word can be confusing because it implies that your payment processor handles the transactions themselves. They’re not — they’re just facilitating them by connecting your sales terminal or online store to the financial networks that provide the infrastructure for processing payments.
We’ve created this blog to help you make sense of it all. Here’s what you need to know when looking for the best credit card processor companies for you, as well as the rates, fees, and costs you’ll encounter when accepting payments online.
Credit Card Processing Rates
Credit card processing rates are the amount that your business pays for each transaction processed by your credit card processor. They’re expressed as a percentage of each transaction and may include other fees like monthly minimums, annual fees and more.
The rate depends on the type of card and its brand, as well as the volume and frequency of transactions processed by the merchant. For example, Visa transaction costs are different from MasterCard rates and American Express fees differ from both Visa and MasterCard charges.
Credit card processing rates are made up of two components: interchange and assessment fees.
Interchange fees are set by Visa and MasterCard and paid to their issuing banks every time a card is swiped at the point of sale. The fee is 2% for transactions under $500 and 1.5% for transactions over $500 in value. Interchange fees apply to all types of credit cards, including debit cards.
Assessment fees are set by third-party processors, who collect interchange fees from merchants and pass them on to card issuers in exchange for providing processing services. Assessment fees range from 0.15% to 2%.
Credit Card Processing Fees and Other Costs:
Credit card processing fees are additional charges made by a merchant account provider for any service provided beyond the basic processing of transactions and transfer of funds between merchants and their banks or credit unions. These can include monthly minimums, annual fees, gateway maintenance fees, and more.
If your business processes more than a certain number of transactions per month (this number varies from processor to processor), then expect to pay a monthly fee on top of your rate per transaction. Some processors will waive this fee if you sign up for automatic withdrawals from your bank account or other payment methods.
Credit card processing companies charge an annual fee that covers their basic services, such as processing transactions and handling disputes. This fee may or may not be included in the rate you pay per transaction; check with your processor to see if this applies to you.
Gateway Maintenance Fees
Gateway maintenance fees cover the cost of maintaining a connection between your business’ computers and payment processors’ systems. These connections are made through gateways — also known as networks — which allow communication between different types of computer systems over phone lines or the Internet.
Fraud Prevention Fees
These are fees charged by the processor to protect against fraud or chargebacks (where customers dispute charges on their statement). The fee can range from $0.10 to $0.35 per transaction, depending on your level of fraud risk.
Every month, your processor will send you a statement detailing all of your transactions processed during that month and any other charges related to your account. This fee is usually between $1 and $3 per statement sent out by mail or email. This is the amount (usually 2% of the total transaction) the processor charges for each credit card transaction. You’ll see it on your monthly statement from the processor.
The bottom line is that there is no single credit card processing cost rate. Each merchant, processor, and company have different rates, fees, and costs associated with credit card processing services. The key to getting a low rate is comparison shopping. Read the fine print, and don’t be afraid to ask questions when selecting a processor.