Merchant Credit Card Processing Fees Explained: Part 1 of 3

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Merchant credit card processing fees are a cost of doing business that many businesses cannot avoid. With fewer consumers relying on cash to make a payment, the industry has seen a drastic uptick in the number of customers choosing to pay with a credit card or mobile device. As a result, credit and debit card transactions may account for anywhere from 65% to 100% of your company’s sales and are likely costing you thousands of dollars in processing fees each year.

If you’ve been in business a while and haven’t changed merchant credit card processing accounts or requested a rate reduction, you could be spending much more on processing fees than you necessary. Credit card processing fees get levied on each credit card sale. These fees can vary by hundreds of dollars or more a month (depending on your sales volume and the merchant account provider your company chooses to provide their merchant credit card processing services). If your business is in good financial shape, our expert advice may help your business save a significant amount of money each year.


How Merchant Credit Card Processing Fees Work and Why They Can Vary

Merchant account providers charge you a variety of ongoing fees. In fact, if you process a high amount of charges each month, your monthly merchant account statement may start to look like a small book. That’s because the merchant credit card processing industry is complex, with several parties making money on each transaction your business processes. From a simplified perspective, you pay two sets of fees:

  • An Interchange fee, which is the fee the credit card companies charge for each transaction. This fee is set by the credit card networks and split between the networks and the credit card issuing banks. It consists of a percentage of the transaction plus a per-transaction fee. The exact percentage of the transaction varies according to a wide range of specific criteria such as what type of credit card it is, what is being purchased, who issued the card, and many other factors.
  • An additional fee charged by your merchant service provider, which may be the merchant bank (the bank that provides the merchant account that allows you to accept credit cards) or an authorized independent sales organization (ISO) of the merchant bank (like Payline Data). This fee is also a percentage of the transaction and may also include a per-transaction amount.

Small and mid-sized merchants are seldom told about the Interchange rate. Instead, they’re presented with a single base rate called the “discount rate” which includes both the Interchange rate and whatever additional fee the merchant services provider charges for each transaction. Because the Interchange rates aren’t disclosed, the smaller merchant generally has no idea what percent of the “discount rate” goes to the merchant service provider. And that — the fee paid to the merchant service provider — is what accounts for the bulk of the pricing differences when merchants are charged non-standard rates for otherwise identical transactions.

Talk to a Payment Expert

Tomorrow, we will share Part 2 of our Merchant Credit Card Processing Fees Explained series, where our experts will add clarity to confusing qualified rates and other lesser-known terms that require thoughtful explanation.

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