Many businesses hesitate to open a merchant account and start processing credit card payments, because they are wary of the interchange and processor fees that may be involved. It also does not help that some merchant service providers can have a labyrinthine fee system that’s hard to understand. This short guide will explain the major transaction fees involved in credit card processing.
The interchange rate is charged by the credit card companies (i.e., Visa, MasterCard, American Express, etc.), and it depends on the type of credit card used in the transaction. For example, a corporate credit card has a different interchange rate from a rewards credit card. The interchange is non-negotiable, and it is paid by the seller through the merchant service provider.
The merchant service provider fees
The merchant service provider will also charge its own fees. These fees are paid on top of the interchange rate, and they vary based upon what merchant account provider you choose, and can also be affected by such factors as your type of business and the sales volume you generate in a given time period.
These fees will also be affected by the type of transactions you make. In-store, face-to-face transactions usually have the lowest fees, because they carry the lowest risk of fraud. Phone orders, and online payments will usually be associated with higher fees because of the relatively higher risk of fraud.
Setup and monthly fees
You may or may not also run into setup and monthly maintenance/subscription fees, depending on the merchant service provider and the extra features your particular plan includes. Whatever the case may be, it’s important to shop around and make sure that you find the offer that works best for your business.
The 3 different types of fee structures
Merchant account service providers will usually go with one of three fee structures: the flat-rate processing fee, interchange-plus or the tiered processing fee structure.
Flat-rate processing fees charge a singular percentage or fixed sum regardless of the type of transaction or credit card being processed. The main advantage of this fee structure is simplicity, because you will know exactly how much you get charged no matter the transaction. An example of a flat-rate fee would be 2.75% on all transactions.
An interchange plus fee structure charges a fixed amount on top of the interchange. For example, you might expect an interchange plus fee to have this format: interchange plus 0.6% + $0.25. This structure generally works out lower than the flat-rate, but it fluctuates based on business type, sales volume and several other factors.
A tiered pricing structure is very fluid, and is charged on top of the interchange rate. This is one of the hardest structures to navigate, and it varies from provider to provider. You may get a good deal with a tiered fee structure, but it is harder to negotiate, and it can feature stipulations which lead to higher rates for certain businesses.
For more information on credit card processing fees, or to open a merchant account, please call (888) 924-2743 or go to Charge.com.