If you run a business that is operating during the 2020 COVID-19 lockdown, you may be relying on online payment processing systems to keep your business functioning. By knowing what fees exist and how they are charged, you can stay on top of your online merchant account. Here is some basic information on the types of processing fees you may run into.
What is a processing fee?
To begin with, a processing fee consists of money that you pay to merchant accounts online to process your transactions. It’s a little money off the top of every transaction made using your merchant account. E-commerce credit card processors typically use the same basic types of fees to conduct business. Before looking at quoted prices with your merchant account options, it can be helpful to learn about the different fees, so you can make “apples-to-apples” comparisons.
Transaction fee vs. discount rate
In general, all transactions will be subject to both a transaction fee and a discount rate. The transaction fee is is a fixed fee that the merchant pays on every transaction, regardless of how big or how small. The discount rate is the percentage of each transaction that the merchant pays as a fee. For large transactions, the transaction fee may be comparatively insignificant, while the discount fee can be many dollars. For very small transactions, the transaction fee may be a very large percentage of the transaction, while the discount rate will be negligible. If the transaction is low enough (one cent, for example), then the transaction fee may be greater than the transaction amount!
This cost of your transactions is set by credit card companies. Every provider pays the same interchange fees, although each card brand has its own different rates that can be calculated based on a table available online.
To calculate your interchange rate, you’ll have to know how your industry and how the type of transaction being conducted affects the rates. Those in high-risk industries, for instance, are those whose transactions are most likely to be disputed, such as in the gambling industry or pharmaceuticals. These industries may pay higher interchange rates because of the comparative risk to the credit card processors.
If you’re setting up e-commerce credit card processors on your website, you need to know about processing fees so you can budget for them and also negotiate certain fees with your merchant account online. Your payment client may want to help you negotiate if you’re a valuable high-volume business, or they may want to increase your rates because you’re in a high-risk industry.
Either way, you should visit Charge.com for merchant service options and call them at (888) 924-2743 to see what’s out there in terms of merchant accounts online and the tools you need to reduce your processing fees as much as possible.