Credit Card Processing

By Sylvia Rosen

Receiving your first credit card processing statement can be quite alarming. The fees may be more than you expected, or you may be unable to decipher what all the charges are for. It's hard to determine whether you're getting a good deal when you don't know what you are paying for, so here is what you need to know about credit card processing costs.

Interchange fee

The one fee you are most certainly paying, whether you see it on your statement or not, is the interchange fee charged by Visa and MasterCard. The credit card companies set these fees in stone and publish them twice a year, so there should be no ambiguity about the different rates charged for transactions on different cards and transaction types.

American Express does not publish interchange rates, so you will be given a rate for AmEx cards based on the size and type of your business. Though higher than the rates for Visa and MasterCard, these rates are not likely to be negotiable if you are a small or midsize business.

The interchange fees are not the only fees you'll have to pay to accept credit cards. Your processor needs to get paid as well. The processor or issuing bank will add their fee to the interchange fee.

A very common way for the processor to add charges is by offering the merchant a tiered pricing plan. In these plans, your most frequent transaction type is given a specific rate, called the qualified transaction rate. All other transactions are charged at a higher, nonqualified rate.

Because your pricing per transaction is not based on interchange fees, it is very difficult to determine how much you are paying in interchange fees and how much goes to your processor for each transaction. Make sure to ask specific questions when initially talking with a processor as to get the most accurate predicted rates as possible.

The other way processors charge is interchange-plus pricing, which adds a standard surcharge to the interchange rate. This way, you know exactly how much you are paying the processor per transaction. This type of pricing, because it is more transparent, usually leads to a better deal for the merchant - even if the statement you receive each month is more complicated.

Gateway fees

If you accept credit cards online, you need to do so through an online gateway. The companies providing this service most often add a per-transaction charge plus a percentage of the transaction as well. These can vary significantly, so it pays to shop around.

No matter how complex your statement is, evaluate your credit card processing costs by auditing your statement from time to time. Make sure you are getting the best possible deal to maximize your own business revenue.

Swipe fees

Last year, Visa and MasterCard settled a dispute with retailers about how much money companies could charge a merchant per transaction, and the settlement stated that a business would have the option to pass on the fees to the customer as "checkout" fees.

The good news is that this gives you the flexibility to choose whether or not to pass fees on to your customers, saving you a little money and encouraging other forms of payment. However, many business owners choose not to do this in order to retain loyal customers, which may be a better business decision in the long run.

While consumers may be cutting back on spending, they are using their credit cards as much as ever. Accepting credit cards increases your business's credibility, is necessary for making online transactions, allows you to complete transactions quickly and efficiently, and provides your customers with desired convenience and more payment options.

The presence of fees shouldn't be a reason to get rid of your credit card processor in favor of mobile apps such as PayPal, because the overall cost for your business will not necessarily be lower. Using a credit card processor provides both you and your customers with more options, increasing customer satisfaction, and proving better for your business in both the short and the long term.