How much does it cost to accept credit cards? This question has become increasingly relevant as merchants look to reduce costs and increase their revenue.
Credit card transactions are becoming increasingly common, especially for ecommerce businesses. The average transaction fee is 2% plus $0.30 per transaction. That means that every time someone buys something from your store, you pay out at least $1.50.
It is great to know how to save money on taking card payments, but what if you don’t have a merchant account? What if you want to start accepting card payments right now?
In this post we will cover:
- Why do I need a merchant account?
- What is the best way to get started with an online business?
- Which payment gateway should I use?
- What is the best free or cheap option?
Why Do You Pay To Take Card Payments?
The first thing you need to understand about taking card payments is that there are fees involved in doing so. These fees can be divided into two categories:
- Merchant Account Fees – these include monthly subscription fees, setup fees, etc.
- Transaction Fees – these are the fees charged by the bank when processing a transaction. They vary depending on the type of card used (credit / debit) and whether the purchase is made in person or online.
So why would anyone pay to take card payments? Because they offer more flexibility than other forms of payment such as cash or checks.
For example, you can process any amount up to $10,000 without incurring additional fees. Also, you can set your own prices, which makes them ideal for selling products on Amazon or eBay.
Costs Of Credit Card Processing
There are three main types of credit card processors:
Payment Gateway Providers
These companies provide software that allows you to process credit card transactions. Some charge a monthly subscription while others allow you to pay only when you make sales.
Merchant Account Providers
These providers manage all aspects of your merchant account including setting up your website, managing your inventory, handling returns and refunds, and providing fraud protection.
Third-Party Service Providers
These companies specialize in processing credit card transactions for small businesses. They typically charge a one-time setup fee and then a percentage of each sale.
Which Is Best?
When deciding between different options, consider the following factors:
- Cost – The price of your services is important because it affects your profit margin.
- Support – Some service providers offer 24/7 customer support while others may require you to contact them during normal business hours.
- Security – Some service providers offer PCI compliance while others do not.
- Features – Some providers offer advanced features like recurring billing, auto-shipments, and multi-currency support.
- Technology – Some service providers offer their own proprietary technology while others use industry standard technologies like Magento, OpenCart, PayPal, Stripe, Authorize.net, and Braintree.
Types Of Credit Card Processing Fees
Here are some examples of what credit card processing costs might look like:
- Monthly Fee – This includes the cost of running your merchant account. The exact amount varies based on the provider.
- Setup Fee – This covers the initial setup of your merchant account. It usually ranges from $500-$1000.
- Percentage Fee – This is the percentage charged for every transaction processed through your merchant account. Most providers charge anywhere from 2% to 3%.
- Recurring Fee – If you want to automatically bill customers for future purchases, this is an option. However, most providers will charge a higher rate if you choose this option.
Cheapest Way To Take Credit Card Payments
The best way to find out how much money you’ll save with each method is to calculate the total cost of accepting credit cards over time. Here’s how to do it:
- Calculate the average number of transactions per month (TPM) using the formula TPM Total Transactions / Number of Months.
- Subtract the average monthly fee (AMF) from the average monthly volume (AVG).
- Multiply the result by 12 months.
- Divide the total by 100 to get the annualized savings.
- Round down any decimal places.
Example: An average of 50 transactions per month equals 0.50 TPM.
0.50 x 12 6.00 AVG Volume
6.0 – 0.10 AMF 5.90 Annual Savings
5.9 x 12 69.60 Annual Savings
69.60 ÷ 100 0.69 Annual Savings
This means that if you accept credit cards for six years, you can expect to save more than $70 per year.
Additionally, services such as Square, PayPal, Shopify and Stripe offer a cheap monthly transaction for you to take advantage of. To cut down on these fees, you should consider accepting credit cards through Square or Stripe.
These services allow you to accept credit cards without having to install additional software or hardware. They also provide merchant accounts and other tools to help you manage your business.
Square’s pricing depends on how many transactions you process each month. For example, if you process less than 1 million transactions a year, you can get started with just $15/month.
If you process more than 10 million transactions a year, then you’ll need to pay $45/month.
Stripe charges a flat rate of 3.5%, which is lower than most other payment processors. You can choose between monthly or yearly plans. Monthly plans start at $29/month. A yearly plan starts at $99/year.
There are several reasons why you would want to use a third-party service instead of building your own system.
First, they have already built their systems and tested them extensively. Second, they offer better customer support because they have a larger staff.
Third, they have already established relationships with merchants and banks, so they can provide discounts and special deals.
Fourth, they can handle large volumes of transactions quickly. Finally, they have access to new technologies that you don’t have time to build.
If you have a store or sell products online, there’s no doubt that taking credit cards is essential to growing your business. But, which payment processor is right for you?
We hope you’ve found some interesting and helpful information about the cheapest ways to take credit card payments.
Before you make a decision, make sure you are well informed. You can do that by accessing our resource hub.
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.