Credit card transactions are a major source of income for most businesses.but it’s important to be aware of the credit card processing fees that come with them. These fees can add up quickly and, in some cases, drive businesses away from accepting these payments altogether. The more you know about how these fees work
The better positioned you will be to negotiate with your payment processor or find ways to minimize them.
The most significant ongoing fee that merchants pay is the credit card processing fee. This a fee charged by the credit card network in exchange for the technical infrastructure they provide to businesses who accept their cards.
Just like the electricity and plumbing in your store these networks need to be built and maintained. Which requires money. That’s why these fees are in place: to help offset the cost of providing this valuable service.
These credit card processing fees are known interchange rates make up the largest portion total card network charges for merchants. Also called base or wholesale fees, these are non-negotiable and set by the card associations and issuers. The most common interchange rates are a flat charge and a percentage of the transaction amount.
Swipe fees vary based on the card type how the transaction is processed. In-person (POS) swiped or inserted transactions typically have lower interchange rates than online, keyed in, or mail-order transactions.
This is because these types of card not present (CNP) transactions are viewed higher risk by both card networks the merchants. So they require more safeguards to protect against fraud and chargebacks.
The number of chargebacks your business experiences can also affect your transaction fees. These are when customers dispute a transaction, often due to billing errors or unresolved disputes over the quality of
Goods or services provided by a business. High levels of chargebacks can drive up transaction fees. So it’s important to minimize them through proper training for your employees by implementing safeguards such return policies and excellent customer service.
Some merchants choose to pass on these credit card processing fees to their customers by adding surcharges or convenience fees. While these are technically legal unless prohibited by state laws.
They can be frustrating for some shoppers and can lead to a loss of business. Some merchants have even chosen to impose minimum purchase amounts in an attempt to limit these surcharges. Although this is not recommended only allowed in certain instances by specific card networks.
With Visa and Mastercard set to increase their swipe fees in 2022, it’s a good time for retailers to review their merchant account agreements and find ways to reduce these costs.
This may include reducing your transaction volume or using an alternate card network that offers lower swipe fees or flat rate pricing. chargebacks your business experiences can also affect your transaction fees. These are when customers dispute a transaction, often due to billing errors or unresolved disputes over the quality
Another option is to use a payment processor with interchange-plus pricing. Which allows you to estimate your average interchange costs and then add on a fixed markup on top.