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Accepting credit cards is essential to the success of your business. But it comes at a price – one that can get in over your head if you’re not careful.
Merchants And Credit Card Fees
How much does credit card processing cost? Average credit card processing fees are 1.5% – 2.9% for transactions swiped in person and 3.5% for online transactions (due to higher fraud risk).
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It goes without saying that being able to get a card is important for small businesses. Unfortunately, processing fees are a necessary expense for businesses today.
Read on to find out what business owners need to know about credit card processing fees, including some smart tips to reduce them.
Credit card processing fees average between 1.5% – 3.5%. Here’s the breakdown for the 4 major credit card networks:
The above rates represent the general range across the web. Your specific processing fee will vary based on how you accepted the card, whether it’s a credit or debit card, and more.
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Average credit card processing fees are 1.5%-2.9% for in-person payments and 3.5% for online transactions. So, for a $100 sale, your fees could be between $1.50 and $3.50 depending on the payment type. But remember that this depends on your payment processor. The total processing fee includes monthly fees and other additional fees.
An assessment fee is charged by the card network (Visa, Mastercard, Discover) to cover operating costs. This is also a non-negotiable cost.
These fees are not as high as exchange fees, but still apply a small percentage. Current assessment fees
In addition to interchange fees, credit card processors charge their own markups. This is the commission they earn for each purchase.
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Fees will vary depending on the credit card processing company. Here are the costs you should compare when shopping for providers.
Often, the marking fee is negotiable. Custom businesses may receive more discounted rates.
For example, the processor may charge 0.20% + $0.10 per transaction. On a $100 transaction, this will cost you $0.30.
The lower your average ticket size, the more you’ll pay in processing fees. One hundred $5 transactions cost more than five $100 transactions.
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Assuming the payment processing provider charges 2% plus $0.15 per transaction, you will pay $0.15 a hundred times for the lower transaction. Compare that to the five times you’d pay for a $100 transaction and you’ll see the difference.
All these fees are charged by your processing provider. Each may charge its own way. Next, learn about the different pricing structures you’ll come across.
Credit card processing providers have four main pricing models. We go over them below, along with the best business type for each.
0.2% + $0.10 is the processor’s markup for the standard exchange rate. These prices are easy to compare with other providers.
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The Interchange-Plus pricing model works for most businesses. It could be the lowest cost.
Let’s say the non-assignable interchange fee is 1.65% + $0.10, and the merchant provider’s markup on each transaction is 0.2% + $0.10. On a $100 sale, it will cost you $1.75 + $0.30, for a total of $2.05.
In this model, all transactions are charged the same flat fee. All cards – Visa, Mastercard, Discover, and Amex – receive the same processing rate. Third party payment service providers typically use this structure.
Interchange fees and markups are mixed. This is the simplest and most predictable price. You can estimate in advance what each transaction will cost.
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The disadvantage is that the transaction cost can be quite high. This option is best for small business owners with small ticket sizes or low volume (up to $5,000 in card transactions per month).
At an average of 2.6% + $0.10, a $100 sale will cost you $2.70. This is more than the Interchange-Plus price.
However, for a $10 purchase, the transaction will cost a flat fee of $0.36, and the Interchange-Plus fee will cost $0.38.
With this model, you pay a monthly membership fee to use the service. In addition, you can pay a small fee per transaction. The idea is that the membership fee covers most of the processing costs.
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This pricing model is best for businesses with high sales volume ($10,000 or more in monthly transactions). Stax and Payment Depot do not charge a percentage markup on the exchange rate, so your savings will offset the membership fee.
The concept is simple. Instead of hundreds of different exchange rates, you only get 3 flat rates depending on the type of card used:
But the problem is that most of the transactions will fall into the mid-qualified and unqualified levels, which have much higher costs. In general, your processing costs will be more expensive, so we do not recommend this model.
Are Interchange fees negotiable? Credit card issuers set interchange fees twice a year. You cannot negotiate them. What you can negotiate is the markup rate charged by the merchant service provider.
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Here’s a quick comparison of the credit card processing fees charged by the top payment processing services.
It is difficult to understand what these numbers mean in real terms. So, here’s a look at what you can expect to pay with different companies.
Of course, don’t just compare processing costs per transaction. It’s also important to consider monthly fees and other account fees, which we’ll discuss next.
Payment processors charge your business a processing fee for using their services. This applies to all card transactions made in person or online. There are three parts to this fee. The marking goes to the processor and interchange to the issuing bank. The assessment fee is taken by the card network.
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In addition to the processing fee for each transaction, your merchant account provider may charge other account fees for using the service. This may include:
These are the two most common pricing models. Confused about whether you should choose a flat rate provider or a top-up provider? Over the past few months we’ve published a number of infographics, which have attempted, with varying degrees of success, to break down the cost of credit cards into their components. paid by the merchant. Of course, this bit itself has come up against the problem many times in recent times, in verbal communication with traders and the post office, and can testify to the difficulty of such a target achieve to be able to live with. simple. The biggest problem is the multitude of fees (infamous interchange fees), which Visa and MasterCard use to calculate the amount card issuers must collect for each transaction.
Well, this morning I found another infographic dedicated to the same topic, whose author, I think, has done a better job than the creator of the two graphics I mentioned earlier. More importantly, though, I think that by offering a different perspective on this question, we’ll help a wider number of people understand the underlying concepts. And this is important, because I’ve seen merchants who do over $100,000 in monthly processing volume choose the wrong pricing model, and pay dearly for their mistake. So let’s do this one more time.
So, as you can see in the graphic below, purchase credit card processing fees are made up of three separate components (for simplicity, I’ll leave Discover out of the picture):
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Now, it’s important to recognize that because a merchant only deals directly with their payment processor, and as a processor selling services, it’s up to the processor to find the best way to present it. Look at it this way: Visa, MasterCard and their issuers will collect interchange and assessment fees, whatever the processor decides to do, so they don’t care about presentation. Clearly, they don’t care about the simplicity, or lack of structure, of their exchange structure. But the processor cares a lot about it, because if a trader finds a certain price model too complicated, he will ignore it, even if the model is, objectively, more useful than the alternative. Perception is reality.
This illustrates my point. Square is famous for, to pick a name at random, the flat rate model, where each swiped transaction, regardless of brand or type of card or other factors, costs the merchant 2.75 percent of the sales amount. A non-slip transaction costs 3.50 per cent plus 15². Simple, right? Well, but let’s compare the swiped cost of Square with the traditional processor-plus interchangeable price model (I use this model for comparison, because it is the only one, which the merchants will accept more). We assume their processor charges our merchants 0.50 percent plus 15?o interchange overhead, which is pretty reasonable. Here’s what we found:
Card Type and Exchange Rate Number of Transactions
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