Credit cards are convenient, but they also come with fees. If you use credit cards to process your transactions for an e-commerce business, you might notice that your processing fees go up without you even realizing it.
Credit cards are widely accepted at brick-and-mortar stores, but they aren’t always accepted online.
If you want to accept payments from customers who don’t have a credit card, you’ll have to pay extra for the service.
There are two main types of credit card processing services: merchant accounts and third-party payment processors.
The former requires you to open a bank account and apply for a merchant account. The latter allows you to accept credit cards without having to open a merchant account.
The fee structure varies depending on which type of credit card processor you choose. Some charge per transaction; others charge monthly or annually.
In general, increases in rates by around 0.1% – 0.5% could be considered reasonable. However, it completely depends on the transaction processor and the vendor themselves.
In this article, we’ll be going over everything you need to know about credit card processing fees and determining what a reasonable rate increase looks like.
Different Kinds Of Price Increases
An increase in credit card transaction fees could be something that your processor has no power over, just like you.
For example, if Visa or Mastercard decide to increase their rates all of a sudden, there’s really nothing you or your processor can do about it other than look for an alternative payment system.
However, if it’s your processor that has increased the rate, there are ways that you, as a vendor, can get around it or even stop it altogether.
Therefore, it’s very important that when your rates increase, you can accurately determine the source of the increase if you want to do something about it.
How To Avoid Increased Rates On Credit Card Transactions
One way of preventing a rate increase in the first place would be to join some kind of wholesale processing club.
These act something like a labor union would in a manufacturing company. They will bind processors to contracts that freeze their rates at an agreed-upon point, which can’t then be raised.
Alternatively, you could argue your case directly to your processor. A lot of the time, they will increase their rates because Visa or Mastercard have upped theirs.
However, some processors can act sneakily and raise their rates more than they need to in order to match Visa or Mastercard.
If you conduct some thorough research, and work out for yourself that this kind of imbalance has occurred, you could have a case against your processor to get your rates back to normal.
How Much Does It Cost To Accept Payments With A Credit Card Processor?
If you’re looking to start accepting credit cards as part of your e-commerce business, there’s no denying that it will cost money. However, how much does it cost to accept payments with a credit card processor?
If you decide to accept credit cards through a third-party payment processor, you can expect to pay anywhere between 1% and 3% of each sale.
This is typically split into two parts: 1% – 2% goes towards the credit card processing company, while the other half goes toward the merchant account provider (the one that processes your bank statements).
For example, if you set your price at $100 and sell 100 products, you’d end up paying around $2 in processing fees.
That means you’d make $98 after all costs are taken into consideration. Therefore, you’d only earn $9800 from those 100 sales.
It should be noted that these figures vary based on the type of credit card processor used. Third-party payment processors usually offer lower rates than merchant accounts.
However, keep in mind that most merchants don’t realize these fees until they’ve already processed their first few hundred dollars worth of sales.
So, if you plan on accepting credit cards, it’s best to do so sooner rather than later.
What Are The Different Types Of Credit Card Processors Available?
While there are many ways to accept credit cards, there are three main types of credit card processors available today: merchant accounts, third-party payment processors, and prepaid debit cards.
Merchant accounts are the most common way to accept credit cards. They require you to open a merchant account with a bank.
Once you’ve opened your account, you can then begin charging your customers’ credit cards.
You’ll also need to provide them with an authorization number. This is basically a unique code that’s generated by your bank when someone makes a purchase using your merchant account. You’ll use this number to verify transactions before approving them.
Prepaid Debit Cards
Prepaid debit cards are similar to merchant accounts in that they require you to have a bank account.
However, instead of charging your customers’ credit cards directly, you’ll issue them with a preloaded debit card.
These cards allow your customers to load funds onto their cards. Then, whenever they want to make a purchase, they simply swipe the card and enter their PIN.
The difference here is that you won’t receive any of the proceeds from the sale. Instead, the customer will send you a check or cashier’s check once they’ve made their purchases.
Third Party Payment Processors
These are the least popular options for accepting credit cards. In fact, most people tend to avoid third party payment processors because they’re not familiar with them.
They work similarly to merchant accounts in that you’ll need to open a merchant account.
But, unlike merchant accounts, you’ll never actually charge your customers’ credit cards directly. Instead, you’ll process their payments through a third-party service.
This allows you to take advantage of the convenience of having a single point of contact. It also helps prevent fraud since you won’t ever see your customers’ credit card numbers.
If you’re thinking about starting a business, it may seem like a daunting task. After all, you’ll need to learn how to accept credit cards, manage inventory, and handle taxes.
But, as long as you know what you’re doing, it shouldn’t be too difficult. And, if you find yourself struggling at some point, you can always turn to guides like this one to help you out!
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.