Credit card processing fees can be complicated for merchants who are unfamiliar with them. However, once you understand the pricing structure the charges are straightforward. It is first important to understand that some processing fees are negotiable, while others are not.
The fee that you pay to process a transaction by credit card involves both the base costs as well as the markup, which together are called the merchant discount. The merchant discount is best thought of as the retail rate you will pay to process credit cards, with the markup being the production cost and the base rate being the raw expenses.
Base Processing Fees
Your base credit card fees are comprised of both assessments and the interchange. These fees are identical for all processors, so it is impossible for them to offer you a lower rate. Inter change accounts comprise the biggest portion of processing expenses and the proceeds are paid to the bank that issues the credit cards. Neither the processor nor brands such as Discover or MasterCard will receive any payment through the interchange.
The stakeholders of companies such as Visa or MasterCard collectively decide the rates they want to charge businesses who accept their cards. The banks, on the other hand, will weigh other factors such as the method used to process the payment (such as card terminal, e-commerce, etc.), the type of credit card used and the type of business you operate to determine the interchange fee. Interchange fees are also determined net of both chargebacks and refunds, and in many cases it will be a percentage of the transaction itself.
While Interchange rates don’t vary from one processor to another, it is possible for a merchant to optimize their interchange charges in a manner that leads to reduced costs. This process is referred to as “interchange optimization.”
Credit card brands such as Discover or MasterCard charge a fee called an assessment for each transaction that is made using their cards. Assessments are similar to interchange in that the fees are the same for every credit card processor and it is therefore impossible to negotiate a lower rate. However, assessments can be charged uniquely if you use a pricing model that is bundled. The reason for this is because the processor has greater pricing control over systems which use bundled pricing.
Credit card brands will change their assessments periodically, and when they do they will make an announcement. Assessment fees are charged as a percentage of a merchant’s volume. Additional charges, such as those involving foreign handling and network access are fees that are incurred through the processing methods used at the point of sale.
Markups are important as they are the only processing fee that can be negotiated. The markup fee is divided among all the parties that are involved in a credit card transaction. Some of these include the acquiring bank, the payment gateway and the processor. Markups can vary greatly from one processor to the next, with differences in pricing structure, rate and the fees that are charged.
Here are more questions on rates & fees that you can explore: