Accepting credit cards as payment in your business is an inevitability in this digital world. However, that just means that you’ll have to accept credit card processing fees as well. Merchant service companies process your credit card payments for you, but they also charge you some fees.
You should be aware of where your money is going. Not only on principle, but knowing the differences between the various types of processing fees can help you choose the best merchant service company. All of these fees are typically fractions of a percent, but when you add them all up, it can affect your bottom line.
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Equipment and Startup Costs
When you first start your business and hire a merchant services company, you’ll need a terminal to run the credit cards through. If it’s a physical terminal, then merchant services companies rent them out for a fee. If you’re running your business online, you will have to pay for a virtual terminal or a payment gateway.
Additionally, this is when you’ll start paying your monthly service fee that many merchant services companies charge.
Both of these fees are directly for the benefit of your merchant services provider. It’s their way of making a profit.
Card-Present vs Card-Not-Present
The fees will be different depending on if you are running physical cards on location, or if you are running them virtually.
Card-present fees are typically less expensive. This is because the processing company is taking less of a risk with a physical card. Card-present transactions have a lower rate of chargebacks, fraud, and all around less work for credit card processors.
Conversely, card-not-present transactions run a higher risk for them. This is because in part due to the ease of online credit card crime, but also because of innocent mistakes. Customers enter the wrong expiration date or credit card number on accident— that leads to extra “work” for the processing company. Of course, no one is actually running transaction information to the bank for approval and back again, but they’ll charge you for the inconvenience all the same.
Interchange fees are paid from the seller’s bank to the customer’s bank. It is a way to assure that banks participate in the credit card network. These fees are set by the credit card associations, so Visa, MasterCard, Discover, and American Express decide on these rates.
However, these fees are typically transferred over to you, the business owner. You have to pay this fee so that your bank can get your money. But if you want to accept credit cards, that’s the reality.
Depending on the merchant services company that you hire, you’ll be charged for every transaction you put through. They are very small percentages, but it adds up over time.
If you only sell a few big-ticket items per day, this might not affect your bottom line too much. On the other hand, if you handle several hundred small transactions per day, this can be an issue. That’s why it’s so important for you to shop around and find the right credit card processor for your business.
Sometimes, you have to give money back to the customer. This is not a return, but instead a result of a customer making a serious complaint, fraud, or maybe even a simple clerical error. Regardless of the cause, you will have to pay the customer back their money and pay a chargeback fee to the bank.
These chargeback fees are typically a flat fee, regardless of the amount you have to return to the customer. If you have too many, you could be penalized by your credit card processing company, enough that they even refuse to service you. As such, it’s important to minimize chargebacks as much as possible. You can’t prevent clerical errors, but you can avoid merchant fraud and keep your customers happy.
This is more of a type of fee than a separate charge. Wholesale fees are paid to the credit card associations and the banks. These are fixed charges that will be the same regardless of which processor you use, like interchange fees.
You’ll still pay your merchant services company for this, and they’ll pass it on.
This is the other type of fee. These are the fees that your merchant services provider charges you, like equipment fees. You can negotiate these fees and shop around for the company that only charges you the least amount of fees.
Average Credit Card Processing Fees
The average credit card processing fee is incredibly varied from one business to the next. It’s going to especially depend on how many transactions you do per day, the amount of those transactions, and what terms you negotiated with your merchant services company.
Take a look at how many credit card payments you’re taking in a month. From there, you can figure out how much you lose to credit card processing fees. Some companies favor percentages (of the value of the transactions processed), others prefer flat monthly rates. Typically, altogether, your credit card processing fees will average about two percent.
All in all, these are fees you’ll have to end up paying in today’s market. Accepting credit cards is an important part of modern business. However, you can be in charge of just how much you end up paying for credit card processing. Understand what you’re paying for before you start negotiations, and you’ll be one step ahead.
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