Credit Card Processing

By Wendy J Woudstra

Credit card processing fees are simply a cost of doing business today. The amount of those fees, however, depends greatly on how well you research credit card processing costs before signing a contract with your merchant account provider.

There are over 600 million credit cards in the United States, issued to more than 176 million card holders. With various reward and point cards increasing in popularity, credit cards are often your customers' preferred payment method. Accepting credit cards has become a necessity in today's business world.

The fees involved in accepting the various credit cards can be significant, and eat into your profit, particularly if you fail to research the best deals before signing a long-term contract with a merchant services company.

The interchange rate

When researching credit card processing costs, you need to understand the fees involved in the process. The first and most important fee you'll be charged is the interchange fee. The interchange fee is a percentage of the transaction that helps to cover costs like authorization, fraud, and credit losses. This fee is sometimes included in a bundled rate. Others may allow you to pay the rate as it's incurred. This is a non-negotiable fee.

The interchange rates for a variety of cards (gold, platinum, reward, or affinity card) and transactions (card-present, Internet, etc.) are the same for everyone. They are published twice yearly by Visa and MasterCard. Be aware of these rates when assessing which merchant service provider offers the best rates. Current interchange rates:

• VISA Supermarket Debit: .30cents on Exempt
• .05 plus .21cents on Regulated
• MasterCard Supermarket: 1.15% plus .05 cents
• Discover Retail 1.56% fee per sale, .10cents per item

Tiered pricing

The costs that you pay, as a business owner, will include a fee above and beyond the interchange rate charged by the merchant services provider. Because they do not share in the interchange fees, they need to add on a fee in order to stay in business.

The interchange fees often will be hidden in their pricing structure, and the business will offer tiered pricing. Tiered pricing is broken down into three levels: qualified, mid-qualified, and non-qualified tiers. These rates will range from 1.65% to 3.25%

In this type of payment structure, the business agrees to pay one rate for a certain type of transaction--for example, consumer credit cards--and a higher amount for transactions that do not fit in that category.

The advantage of this system is that you will know exactly which amount you'll be charged for each transaction, in an easy to read format. The downside is that it is extremely expensive. A more competitive model may yield a 40-50% savings.

Interchange plus

With interchange plus, the merchant services provider adds a set percentage and/or transactional amount to the published interchange rate. The components of processing costs are separated, providing for a less complicated and more transparent system. This will lead to lower credit card processing costs over time.