Credit card fees have an almost labyrinthine nature, with many business owners having a hard time with understanding where they start and where they end. However, this does not mean that they are completely obscure. After all, businesses that process credit cards pay them regularly. The important thing to remember is that the fees typically pay for themselves many, many times over through increased sales. If they didn’t, accepting credit cards wouldn’t be so popular!
The different types of fees
There are several different types of fees that come into play. First, you have the transactional fees which occur every time a transaction is made. You then may have flat fees, which will usually show up on your monthly statement. By their very nature, flat fees are very diverse and they can apply to a multitude of costs. Thirdly, you have incidental fees. These fees are triggered by certain incidents, such as a chargeback.
These three types of fees can fall into two more categories: wholesale fees, and markups. Wholesale fees are used by the merchant bank or credit card processor to cover their costs. These fees are almost always the same across vendors, so there is no point in shopping around for lower wholesale fees. Markups on the other hand are used to cover the profits of your vendor. These fees can range greatly, and it is important to find the vendor with the right markup fees. This is easier said than done, since some vendors may obscure which markup fees apply where, in an attempt to bewilder customers and maximize profits.
Keep in mind, of course, that it costs the payment processor money to create and maintain your merchant account, and the payment processor is also taking on risk, in the event that they are forced to issue refunds from your customers and cannot collect that money from you. Accordingly, no vendor is going to give away a merchant account without marking up at least some of the costs.
Calculating the fees
When it comes to transactional fees, you may have what are called interchange reimbursement fees and assessments. These are fees charged by credit card associations and the card-issuing banks. They are paid per sale, and consist of a percentage and a flat fee, usually around 2.1% + 10 cents. Assessments on the other hand are based on the volume of transactions each month. So far, these are wholesale fees, and you will always be charged at least an extra fraction of a percentage point and/or flat fee by your payment processor as a markup.
Flat fees are much more numerous and they may conceivably include any of the following: terminal fees, payment gateway fees, PCI compliance fees, annual fees, early termination fees, monthly fees, monthly minimum fees, statement fees, IRS report fees, online reporting, and network fees. Incidental fees may include some of the following: the address verification service, voice authorization fee, retrieval request fee, chargeback fee, batch fee and NSF fee.
Not all of these fees are always mandatory or wholesale, so it’s important to ask about these costs no matter who your merchant account service provider is in order to ensure that you get the most features for the best price.
For more information about credit card processing fees, or to sign up for a merchant account, please call (888) 924-2743 or go to Charge.com.