Feeling lost in a maze of credit card processing fees? You’re not alone. Between interchange rates, per-transaction charges and mysterious monthly statements, figuring out the true cost of accepting credit card payments is tough. It can feel like deciphering a foreign language for budding entrepreneurs.
This guide translates the jargon and breaks down credit card processing costs into clear terms. We’ll shed light on the different fees involved, provide tips on lowering your costs and help you find the perfect processing solution for your business. By the end, you will possess a firm grasp of how much you can expect to pay for credit card processing.
What is credit card processing?
The moment a customer swipes or inserts a card into your card reader, a complex series of steps unfolds behind the scenes; this is credit card processing. First, a secure payment gateway sends encrypted information to the credit card network (Visa, Mastercard, etc.), which acts as a central hub for all card transactions. The network then contacts the issuing bank (the one that created the customer’s credit card) to confirm that the customer possesses the funds for the purchase. This happens instantly, with an approval or denial message sent back through the network.
If the customer’s bank gives the thumbs up, the network then instructs it to hold the purchase amount. Finally, the network facilitates a funds transfer from the customer’s bank to your business’s bank, less any processing fees. The credit card processor itself acts as the director; it ensures secure transmission of the customer’s information, smooth routing through the network and seamless settlement between banks.
What does credit card processing cost?
While accepting a credit card payment seems relatively simple on the surface, it’s actually a complex process that involves several layers of costs. Here’s a breakdown of the different types of fees and a range of typical costs businesses can expect.
Interchange fees
These are the fees set by credit card brands (Visa, Mastercard, etc.) for each transaction. They are a percentage of the sale amount and vary depending on the card type (debit, credit, rewards cards, etc.). They also vary by transaction size and card-present vs. card-not-present transactions (i.e., in-person vs. online transactions).
- Costs: Interchange fees can range from 1% to 3% of the sale amount, with rewards cards and card-not-present transactions often carrying higher fees. You don’t have direct control over these fees, but they are a major component of your overall credit card processing costs.
Assessment fees
These are smaller fees charged by the credit card networks in addition to interchange fees. They cover the cost of network operations and fraud prevention.
- Costs: These are typically flat fees per transaction and usually range from a few cents to around 15 cents.
Processor’s markup
This is the fee added by the credit card processor for their services. It can be a fixed monthly fee, a per-transaction fee and/or a percentage of the transaction amount.
- Costs: The processor’s markup can vary greatly depending on the vendor, your negotiation skills and your business’s sales volume. The cost consists of several fees and rates. Fixed monthly fees, also known as a monthly subscription fee, range from $20 to $100, per-transaction fees from 7 cents to $1 and percentage markups from 0.2% to more than 2% of the sale.
Additional fees
Some processors may also charge you if you don’t reach a monthly minimum in sales volume, along with tacking on early termination fees, statement fees or chargeback fees. Be sure to read the fine print of your credit card processing agreement and understand all potential costs before signing a contract.
How can you lower credit card processing costs?
A few components of credit card processing costs, including the interchange and assessment fees set by the card networks, are nonnegotiable. However, you can lower your costs by getting the best deal possible with a credit card processing company. Follow these tips to get the most bang for your buck.
Understand your pricing structure.
The two main pricing models used for credit card processing are flat-rate and interchange-plus.
- Flat-rate credit card processing involves a simple monthly fee consisting of a fixed percentage take of the sale and/or a fixed fee per transaction. This rate is consistent month to month.
- Interchange-plus credit card processing adds a small markup over the various interchange rates set by the card networks. This rate often changes.
Analyze your average transaction volume to determine which pricing structure best suits your needs. You should choose the model that will result in the lowest processing rates for your specific business. There is no one-size-fits-all across businesses and industries.
Negotiate your rates.
Don’t be afraid to negotiate your fees with the processors you’re considering. Highlight your business volume and processing history (if any) to bolster your position. Obtain quotes from multiple companies and use them to gain greater leverage during a negotiation. Compare rates from different processors before making a decision. If you’re switching processors, ask the new company to cover any early termination fees you’ll be charged by your current provider.
Work with your customers.
Encourage customers to use payment methods with lower credit card processing fees, like chip cards or contactless payments. Consider offering a discount for customers who pay with cash or debit cards to incentivize these lower-fee options.
Avoid and negotiate hidden fees.
Always read the fine print of the proposed credit card processing agreement before signing on the dotted line. In many cases, processors are open to negotiation. Here are a few of the specific fees you should look to reduce.
- Account fees: This is a monthly maintenance charge for your processing account. See if it can be reduced or waived.
- Transaction fees: This could include AVS fees, batch fees and payment gateway fees. See if you can get a better per-transaction rate.
- Minimum monthly fees: Some processors maintain a minimum figure you must process each month. Negotiate a lower minimum or ask if they can waive the requirement altogether.
- Early termination fees: These are often penalties for canceling your contract before the end of the term. Negotiate a shorter contract term or, if you’re switching vendors, ask your new credit card processing company to cover the fee.
- Chargeback fees: These occur when a customer disputes a charge. Negotiate a lower fee or explore ways to reduce chargebacks.
After you sign your contract and begin using the processor, monitor your monthly statements for any errors or unauthorized charges.
Best credit card payment processors
As you research possible credit card payment companies to partner with, check out our picks for the best credit card processors — including the popular vendors below.
- Stax: With Stax’s monthly subscription model, you only pay $99 to $199 per month for their credit card processing service, plus a small flat fee of 8 cents to 15 cents per transaction.
- Merchant One: Flexible rates and free POS equipment make Merchant One stand out. The company charges a monthly subscription fee of $6.95 per month, plus a flat 0.29% to 1.99% processing rate.
- Clover: Small businesses flock to Clover for its top-notch POS hardware and software. Processing rates range from 2.3% to 3.5% of the sale, plus 10 cents per transaction.
- Helcim: This vendor charges a flat 1.94%, plus 8 cents for credit card transactions made on one of its physical terminals. For online sales, invoice payments and keyed-in transactions, the rate is 2.51% plus 25 cents.
- Payment Depot: This low-fee processor charges a subscription fee of $59 to $99 per month, plus a small flat fee of 7 cents to 15 cents per transaction.