Credit cards are used for many transactions these days, both online and in brick and mortar stores. It would be advisable for business owners to accept this form of payment, since not doing so locks out many potential customers. In addition to that, understanding the workings of credit card processing is also critical.
This goes a long way in making many decisions including choosing the best processing system, as well as finding ways to secure your customers’ information and payments. The costs incurred during credit card processing are not static, so business owners can find ways to reduce them in order to optimize their profit margins. The common costs associated with credit card processing include:
Interchange fees comprise the largest proportion of credit card processing fees, which can be up to 70% to 80% of the total processing costs. Interchange fees can be broad and complicated, and are charged to the merchant account (the seller’s bank account) and paid to the issuing bank.
The interchange fee is usually not a static fee, but either a percentage of the transaction cost or a combination of a percentage and a static fee (for instance, 1.5% and $0.15). The exact nominal details for these fees depend on the types of cards involved and other variables. The interchange fees are not controlled by the merchant account provider, so one may not be able to shop for one who would be beneficial to their business.
This refers to transaction fees and rates that credit card brands charge. It is a mechanism for these brands to generate an income, and account for a smaller proportion of the entire card processing fee (usually about 2%). The assessment fees are usually a fixed expense.
As is the case with the interchange fees, assessments are costs that are not controlled by the merchant account provider. Assessments may be charged based on various variables depending on the company involved. Some may be applied to the gross processing volume, while others may be charged on specific types of transactions only. Some authorization and settlement request types may also attract assessment fees.
This is a general term referring to any other extra credit card processing fee other than the assessments or interchange fees. These include the merchant provider’s processing charges and hardware, software and payment gateway costs. These are the only non-fixed cost associated with credit card processing, which makes them open for negotiation with the merchant provider. Markups vary depending on the nature of the business, the method used for credit card processing, the average ticket amount and the processing volume.