As a merchant, receiving the first bill from a credit card processing company can be overwhelming and confusing. There probably will be a long list of mysterious charges that leave you feeling powerless and exploited. And switching companies is an even more intimidating task, requiring intense time and energy with the risk of ending up in a worse situation. At the very least, you should know what some of these charges are for so you can potentially avoid paying expensive bills. Here’s a general overview and breakdown of credit card processing fees to give you a greater understanding of what exactly you’re paying for.
Credit Card Processing Entities
Rather than simply paying your credit card processing company, these expenses actually to three entities involved in the credit card payment process: the bank or credit union, the credit card network, and your processing company. So right off the bat, we can break down your payment into three types of charges:
Interchange fees: These fees go to the bank or credit card issuer and make up the vast majority of all processing expenses. Since these are predetermined by the issuer, they are not negotiable by the merchant. They can depend on a variety of factors:
- Credit card network: Visa, Amex, etc.
- Card type: credit and debit cards have different charges, and some credit card types can have upcharges, such as business and rewards cards.
- Payment processing method impacts the charge for that transaction, depending on the chargeback risk factor. A physical card swipe will have a different rate from card information data entry. Most issuers will also distinguish between online payments and card-not-present transactions.
- The merchant category code, or MCC, is the classification of your business industry, which also is based on risk factors. High risk industries such as gaming, CBD, and adult products can have significantly increased rates. Unless you have a company like Double Helix that specializes in high risk merchant accounts, frequent chargebacks can be extremely costly or potentially result in account termination.
Some issuers will make their fees publicly available, which is an extremely helpful resource when determining the validity of the bill from your credit card processing company. Others will not provide this information until you are partnered with them, which can be an indicator of overpriced fees in some cases.
Assessment fees: These fees go to the credit card company, and therefore are also not negotiable. Assessment rates are under the discretion of the company, but they can depend on factors like card type, transaction volume, and type of transaction. Some unique transactions such as international can have increased rates.
Processing fees: This is the markup that goes directly to the credit card processing company, and it is the only negotiable category of fees. Before you attempt to negotiate your charges, it is important to understand which of the fees are determined by the processing company, or how much of your bill makes up their profit margin. The overall cost of a processing company can be presented as separate or blended with interchange and assessment fees. For example, .25% + $0.10 could represent the interchange plus the markup for transaction fees. Unfortunately, some companies will not make such a clear distinction.
Types of Charges and Fees
Now that you understand the entities involved in credit card processing, let’s break down your actual bill. The long list of fees that you see will be a combination of interchange, assessment, and processing fees that fall into these three categories:
Transactional: A small fee paid during each individual transaction. Typically, these are represented as a percentage, flat rate, or a combination of both. Transactional fees are usually the rates advertised to merchants as the main cost of a credit card processing company; be aware that they make up only a portion of the actual fees you will be charged when hiring a company.
Scheduled: Regular, recurring fees that do not depend on transaction volume. These are usually mostly processing fees and can depend on other services besides transactions that are provided by your credit card processing company. These charges can include:
- Fixed Acquirer Network fee
- Merchant Location fee
- Monthly fee
- Annual fee
- Statement fee
- Online reporting fee
- Monthly minimum fee
- Terminal fee
- POS software fee
- Payment Gateway fee
- IRS reporting fee
Incidental: These are charges that occur occasionally following a certain event. This type of fees is the most avoidable if you are aware that these charges can occur depending on your behavior or account status. Some incidental fees include:
- Chargeback fee
- Account closure fee
- Early termination fee
- Application fee
- Processing integrity fee
- Voice authorization fee
- Retrieval request fee
- Non-sufficient funds fee
Of course, the amount and nature of credit card processing fees can vary greatly depending on the company, so it is important to understand each fee and how you can control it.