Credit cards are convenient, but they also come with fees. What exactly are these fees, and how much do they cost?
Credit cards are widely accepted forms of payment around the globe. They allow consumers to pay for goods and services without having to carry cash or coins. In addition, they offer rewards programs and other perks.
Fees vary depending on the type of card, the merchant, and the amount being charged. Some merchants charge a flat rate per transaction, while others charge a percentage of the total purchase price.
The latter is usually higher since it covers the costs associated with accepting payments from customers.
If you’re a business owner or planning on becoming one, it’s important that you do plenty of research prior to picking a credit card processor provider, as there are many factors to consider when choosing which company will best suit your needs.
In this article, we’ll take a look at what a credit card processing fee actually is, as well as some of the different types of charges that can be incurred by businesses. We’ll also cover some tips for reducing those fees.
How Much Does It Cost To Accept Credit Cards?
The answer depends on several factors, including, the type of Card, merchant type, the amount that is being charged, and of course, the processing fee. There are three main types of credit card processors:
- Merchant service providers (MSPs)
- Third-party processor
- Independent sales organizations (ISO)
Each has its own pros and cons, so let’s explore them in more detail.
Merchant Service Providers
Merchant Service Providers (MSPs) MSPs provide their clients with an online storefront where they accept credit card transactions. These companies are typically owned by banks, credit unions, or large retailers who want to sell products through their websites.
• Easy to set up
• May not have access to all the features available to third-party processors
• Fees may apply
Third-Party Processor A third-party processor acts as an agent between the customer and the bank. This means that the third-party processor handles the entire transaction, meaning that no fees are applied to the consumer.
• No fees
• Requires additional training
• Not always easy to integrate into existing systems
• Not always reliable
Independent Sales Organizations
Independent Sales Organizations (ISOs) An ISO is essentially a reseller of credit card processing services. Instead of selling directly to merchants, ISOs act as middlemen between the client and the merchant.
• Can handle high volume transactions
• Limited options
• May require extensive training
The Two Types Of Processing Fees
As previously mentioned, there are two ways that credit card processing fees can be structured: flat rates and percentages. Flat Rates are based on the dollar value of each transaction.
For example, if you decide to charge $10 for every sale made using your credit card, then you would only need to add 10% to the cost of each transaction.
Percentages are calculated based on the total value of each transaction. So, if you were charging 5%, then you’d need to tack on another 5% to the cost of every transaction.
What Is The Average Processing Fee Price?
According to the Federal Reserve Bank of St. Louis, the average credit card processing fee was $0.54 in 2017. That number has been steadily increasing over time.
However, there are wide variations in pricing across the country. For example, the highest average processing fee was found in New York City at $3.07, while the lowest was found in North Dakota at just $0.23.
Are There Any Other Costs Associated With Using Credit Cards?
Yes! You should know about these other fees before signing any contracts.
Network Maintenance Fee: This fee is charged if your network experiences downtime during peak times. If the payment system goes down, the merchant will lose money.
Transaction Security Fee: If your business uses a point-of-sale device such as a cash register or mobile POS app, then you’ll need to pay a monthly security fee to protect against fraud.
PCI Compliance Fee You must comply with the Payment Card Industry Data Security Standard (PCI DSS). The PCI DSS requires that all merchants use secure data transmission methods when handling sensitive information such as credit cards.
Tips For Reducing Your Processing Fee
Before signing any contract with a credit card processing company, make sure to ask about how much the company charges for the service.
You should also find out whether there are any hidden fees. Here are some things you should know before agreeing to sign a contract:
What Are The Terms And Conditions?
You should read the terms and conditions thoroughly. Make sure that you understand everything that is included in the agreement. Also, don’t forget to check for any special clauses that might affect you.
How Will I Be Charged?
You should be aware of how you will be charged. Some companies charge per transaction, while others charge monthly.
If you’re unsure of what type of rate you’ll be charged, it’s best to contact the company first. This will allow you to make a wiser financial decision.
Does The Company Have A Good Reputation?
A good reputation is important when looking for a company to process your credit cards. Check online reviews, look at other clients’ experiences, and see if they have been recommended by friends or family members.
Are Taxes Covered In The Outlined Price?
Most credit card processing companies include sales tax in their pricing structure. However, some companies charge an additional 3%. This means that you could end up paying more than you expected.
There we have it. Now that you have finished reading through all of the above, we’re hoping that you now are well aware of what a credit card processing fee is, why they occur, as well as some of the various other costs that may come along with it.
Prior to picking a provider, take into account the advice that we have shared above and do your research to make sure that you are getting the best value for your money.
Paul Martinez is the founder of EcomSidekick.com. He is an expert in the areas of finance, real estate, eCommerce, traffic and conversion.
Join him on EcomSidekick.com to learn how to improve your financial life and excel in these areas. Before starting this media site, Paul built from scratch and managed two multi-million dollar companies. One in the real estate sector and one in the eCommerce sector.