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Best Merchant Credit Card Processing Fees – Keeping track of all the moving parts involved in credit card processing is difficult. There are many different parties involved in any transaction, and each of them must be paid.
For those of you who want to know more about bank fees and where they come from, you’ve come to the right place. Below I explain everything you need to know about this topic.
Best Merchant Credit Card Processing Fees
Let’s start with the basics. Before going into the fees associated with a buyer’s bank, it is important to define exactly what a buyer’s bank is.
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The acquiring bank is your bank. It is commonly referred to as “customer” or “merchant bank”. Acquiring banks process credit and debit card transactions on behalf of merchants.
Bank purchases are licensed by credit card networks, such as Visa and Mastercard. Buyer authorizes the sale when making a credit or debit card transaction based on cardholder information.
Cardholder data at the time of sale is provided by the card network and the issuing bank (the bank that issued the card to the consumer).
You can see that the acquiring bank is one of many different players involved in credit card processing.
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Let’s say a customer pays for your goods or services using Mastercard. The card-issuing bank provides the card data to the customer.
After the buyer’s bank confirms that everything is in order and that the funds are sufficient, it approves the purchase and deposits the proceeds of the sale into your account.
In some cases, a payment processor can charge twice as much as a bank purchase. They may contract directly with merchants to provide payment processing services. This means that not every payment processor is an acquiring bank.
To better understand where a bank’s underwriting fees come from, you need to understand the role that underwriters play in making payments.
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Access to banks authorizes credit and debit cards. They also liaise with bank disbursements on behalf of the merchant. So whether you’re paying with a debit card transaction or a credit card, the merchant needs a buyer.
In short, an acquiring bank can be considered an intermediary between the cardholder’s financial institution and the merchant. The buyer’s job is to ensure that funds are transferred.
The acquiring bank assumes certain financial risks for its role in the process, where the acquiring bank acts as a trustee.
Let’s take a look at a simple five-step process to better understand what the acquiring bank does for each credit card transaction:
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Again, the terms “buying bank” and “disbursement processor” are not always interchangeable. Although some buyers are also payment processors, this is not always the case.
Why do banks charge fees? As you have seen in previous sections, the acquiring bank plays an important role in the transaction. Without the acquiring bank, merchants could not get paid.
It should also be understood that the acquiring bank must handle sensitive cardholder data. This means they must adhere to strict security standards and payment processing practices.
In view of these, the acquiring bank assumes the risk and other investment in the process from the merchant.
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When the issuing bank sends the funds to the acquiring bank, the net card fee is already deducted. So the merchant pays the interchange fee plus the processor’s or bank’s margin.
The payment service provider should also make allowances for its role. So each trade fee actually consists of exchange fees, appraisal fees, etc.
But believe it or not, credit card processing and bank acquisition fees and interest rates are negotiable. Most merchants don’t realize this and end up paying extra for credit card processing.
Every buyer’s bank is different. Sometimes you pay a flat fee, but usually the fee depends on the type of transaction, transaction volume and card used.
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For example, you pay different fees for Visa cards compared to Amex cards. A PIN credit transaction may not incur any appraisal fees or network fees like an e-commerce credit transaction through a payment gateway.
The best way to lower your bank charges is to consult with a professional who can negotiate these rates on your behalf. If you try to do it yourself, you may not get the results you are looking for.
Here at Merchant Cost Consulting, we can help reduce your credit card processing costs. We will contact the buying bank on your behalf to negotiate a lower price.
Depending on your processing volume, this could save you tens of thousands of dollars per year. Contact us today for a risk-free audit and assessment.
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Also check out our blog. We are constantly updating this resource with information on banking resources, credit card fees, card networks, and many other useful insights about credit card processing.
Prior to founding Merchant Cost Consultancy, Colin worked in the payments industry for 3 years, gaining knowledge in and out of the industry. In the process, Colin learned how deceptive the industry can be and wanted to do something about it. Prior to joining the payments industry in 2014, Colin played professional baseball for the Los Angeles Angels of Anaheim. Colin is from Watford, CT and graduated from Virginia Tech with a degree in business where he was a member of the baseball team.
Merchant Cost Consulting is a cost reduction company that lowers credit card processing fees for business services without disrupting businesses’ day-to-day operations. Credit card processing fees can be a tough pill to swallow. While the vast majority of merchants in 2020 understand the importance of accepting credit cards, most of them don’t realize that they can save money by processing credit cards.
Not every transaction is priced at the same exchange rate. Fees vary based on a variety of factors.
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Exchange optimization ensures that you process your transactions at the lowest possible speed. Depending on your sales volume, this could save you tens or hundreds of thousands of dollars a year.
Let’s start with the basics. Exchange Merchants’ fees for credit card processing. IC rates are determined by the card network and vary based on different categories (e.g. individual versus online, card type, B2B versus B2C, transaction type code, processing volume, etc.).
IC rates include costs and risks associated with payment processing such as fraudulent transactions and chargebacks. For more information on this, see our full guide to fees and fee exchanges.
Generally, exchange fees are non-negotiable. These fees are determined by the card network and collected by the issuing bank.
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As mentioned above, there are hundreds of different exchange types. The difference between one item and another can be a whole percentage point. Even if you can’t change the actual fees and interest, there are some things you can do to ensure your business gets into the low interest category.
Each time a transaction is processed, it is categorized by the card network on that card. Most merchants don’t realize that the way they process credit card transactions can cause them to pay higher interchange fees. This can be easily prevented if you take some steps.
For starters, you need to make sure your employees are properly trained to handle the business. When cards are accepted in person, some employees skip prompts at credit card terminals to speed up the transaction process.
This could be a costly mistake. Follow each question, including address verification. If you miss the reminder, you can expect to pay a higher interest rate.
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Another way to ensure low exchange rates is to settle in series every day. If you do not resolve the package within 24-48 hours, the transaction will be “closed”. What does that mean?
Each trade has a target exchange rate, which indicates the minimum interest rate. If specific criteria are not met (such as late settlement), the transaction is automatically “downgraded” to a more expensive category.
For more information on these discounts, including actual discounts, see our guide to common exchange discounts. This is important to understand in terms of conversion optimization.
Any trader can follow the above mentioned methods and best practices. However, some marketers benefit from conversion optimization more than others. In many cases, it may be out of your hands, depending on your business type and how you do business.
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In general, B2B (business-to-business) and B2G (business-to-industry) marketers benefit the most from IC optimization. You can pay lower rates when you use your business card or government card.
Why is this? B2B and B2G companies generally accept “P-Cards” (purchase cards). These cards collect additional card data at the point of sale.
A merchant selling to a general consumer only collects Tier 1 data (Tier 1), which includes basic customer account information. It’s all about handling sales. However, Level 2 (Tier 2) and Level 3 (Tier III) card data (on B2B and B2G P-Cards) provide additional information such as:
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