Credit card processing fees are pesky, unavoidable, and costly. The exact amount you’ll pay will vary depending on the size of the transactionAn act between a seller and a cardholder that results in either a paper or an electronic representation of the cardholder’s promise to pay for goods or services received from the act. The action between a cardholder and a merchant that results in financial activity between the merchant and cardholder’s account...., type of transactionAn act between a seller and a cardholder that results in either a paper or an electronic representation of the cardholder’s promise to pay for goods or services received from the act. The action between a cardholder and a merchant that results in financial activity between the merchant and cardholder’s account...., and overall volume. Fortunately, there are ways you can recoup lost profits and pay less in processing fees.
Let’s start by answering the simple question of what is a processing fee and then explore them in greater detail. We’ll even share some advice on how you can reduce just how much you’re paying in fees as a business and put you on the path to bigger profits.
What Is a Processing Fee?
To put it simply, a processing fee is a pre-set amount that a business pays every time a customer uses a credit or debit card to pay for their goods or services. The processing fee can be split into two parts: the interchangeThe exchange of debit and credit transaction data between merchant banks and cardholder banks based on an agreement (governed by BASE II [VISA] or INET [MasterCard]) between the participants. The fees charged by the Issuer to the Acquirer. fee and the assessment fee.
The interchange fee primarily goes to the credit card issuerA bank that issues credit cards to consumers., while the assessment fee goes to the network. So, if a customer pays for their purchase using a Citi Mastercard, the interchangeThe exchange of debit and credit transaction data between merchant banks and cardholder banks based on an agreement (governed by BASE II [VISA] or INET [MasterCard]) between the participants. The fees charged by the Issuer to the Acquirer. fee will go to Citi (the issuerA bank that issues credit cards to consumers.), while the assessment fee will go to Mastercard (the network).
How Much Do Processing Fees Cost?
More likely than not, your business will contract a merchantA business that accepts credit cards for goods or services. service provider (MSP) to handle your card processing, so you’ll likely pay your fees directly through them. If that’s the case, you’ll need to watch for hidden fees. It’s essential to shop around when choosing an MSP to make sure you aren’t overpaying.
Still, the amount you pay in processing fees depends on multiple variables, including the card network, transactionAn act between a seller and a cardholder that results in either a paper or an electronic representation of the cardholder’s promise to pay for goods or services received from the act. The action between a cardholder and a merchant that results in financial activity between the merchant and cardholder’s account.... amount, and type of transactionAn act between a seller and a cardholder that results in either a paper or an electronic representation of the cardholder’s promise to pay for goods or services received from the act. The action between a cardholder and a merchant that results in financial activity between the merchant and cardholder’s account..... The total processing fee combines the interchangeThe exchange of debit and credit transaction data between merchant banks and cardholder banks based on an agreement (governed by BASE II [VISA] or INET [MasterCard]) between the participants. The fees charged by the Issuer to the Acquirer. fee and assessment fee, so let’s break each part down into average charges.
The interchangeThe exchange of debit and credit transaction data between merchant banks and cardholder banks based on an agreement (governed by BASE II [VISA] or INET [MasterCard]) between the participants. The fees charged by the Issuer to the Acquirer. fee is typically a percentage of the customer’s purchase plus a small fixed amount (like $0.25) per transactionAn act between a seller and a cardholder that results in either a paper or an electronic representation of the cardholder’s promise to pay for goods or services received from the act. The action between a cardholder and a merchant that results in financial activity between the merchant and cardholder’s account..... The network, card type, processing method, and merchantA business that accepts credit cards for goods or services. category code (MCC) impact the total interchangeThe exchange of debit and credit transaction data between merchant banks and cardholder banks based on an agreement (governed by BASE II [VISA] or INET [MasterCard]) between the participants. The fees charged by the Issuer to the Acquirer. fee. You can expect the interchangeThe exchange of debit and credit transaction data between merchant banks and cardholder banks based on an agreement (governed by BASE II [VISA] or INET [MasterCard]) between the participants. The fees charged by the Issuer to the Acquirer. fee to range from about 1.4 percent to 3.4 percent.
The assessment fee is much smaller than the interchangeThe exchange of debit and credit transaction data between merchant banks and cardholder banks based on an agreement (governed by BASE II [VISA] or INET [MasterCard]) between the participants. The fees charged by the Issuer to the Acquirer. fee. While it still varies depending on network and other factors, it generally adds up to about 0.13 percent for each transactionAn act between a seller and a cardholder that results in either a paper or an electronic representation of the cardholder’s promise to pay for goods or services received from the act. The action between a cardholder and a merchant that results in financial activity between the merchant and cardholder’s account.....
In total, credit card processing fees range from 1.5 percent to 3.5 percent. However, businesses pay more than issuerA bank that issues credit cards to consumers. and network processing fees. If you’re accepting credit or debit cards, you’ll have to pay for terminals, and you’ll need a merchantA business that accepts credit cards for goods or services. services provider (MSP) as well, who will likely charge a monthly fee to your business.
Who Has to Pay Processing Fees?
You might think that customers should pay the processing fee since they’re choosing a credit or debit over cash or check. If you feel that way, it’s good to know that businesses have the option of passing the cost on to the customer by implementing a “credit card surcharge” or another fee that helps cover their back-end processing fees.
If you’re thinking about passing the processing fees onto your customer, you may need to make some considerations. In some states, you’re not allowed to charge any more than the actual processing fee that you’re paying (i.e., you can’t profit off the fee). Additionally, charging a fee for using a credit card can discourage some customers from choosing your store, especially if alternative stores don’t charge them extra.
Another way to help recoup processing fees is to factor the cost into the pricing of your items and then offer a “cash discount,” which subtracts two to three percent (or however much you add to your retail price) for customers who use cash or check to pay for their purchase. This method of incentivizing non-card transactions could prove effective for your small business, especially if processing fees cut your profits.
Can I Reduce My Processing Fees?
It doesn’t take long after asking, “What is a processing fee?” and doing some simple math for any business to start wondering how to reduce the amount they’ll end up paying in fees. Unfortunately, processing fees are unavoidable if you plan to accept cards, but there are ways that you can save money.
Many merchantA business that accepts credit cards for goods or services. service providers charge a monthly and transaction feeA fee charged for each transaction processed by the merchant. This is in addition to the percentage discount fees., which means some costs are hidden, and you might end up paying more than you need to. That’s why it’s essential to do your research and turn to a partner you can trust, like NMA.
About NMA
NMA is a merchantA business that accepts credit cards for goods or services. advocacy group dedicated to reducing or eliminating the unnecessary fees associated with accepting credit card payments. Since 2004, NMA’s payment processing solutions have delivered tailored solutions, best-in-class customer service, and high-quality service offerings for businesses across multiple industries. Whether it’s high-risk or low-risk, brick-and-mortar or e-commerce, NMA will create the best processing experience for your company.
For more information, visit us at our legacy.nationalmerchants.com or by calling (866) 509-7199.
