Credit Card Processing Fees: Which Are Avoidable?
You don’t give your products & services away for free & neither do payment processing companies. Whether you like it or not, getting money from your customers’ bank accounts to yours has its costs.
As a result, you pay rates & fees on every transaction that your business processes. Therefore, the total charge that you’ll incur largely depends on the transaction amount.
Keep in mind that other factors that CAN affect your total fee per transaction. These factors include your type of business, card issuer, type of card & which of the many pricing models your merchant services provider uses.
Credit Card Processing Fees Are A Cost Of Doing Business
All this trouble, however, is avoidable if you choose to only accept cash. However, by doing this, you’d alienate a large majority of consumers who may want to visit your business, but do not regularly carry cash. As a result, every business owner needs to accept credit cards in order to reach their full earning potential.
In fact, 83% of businesses see an increase in sales when they start accepting credit card payments. 52% of those businesses saw a monthly increase in sales over $1,000 & 18% saw an increase over $20,000. (Small Business Trends)
For this reason, credit card processing has become a cost of doing business in the modern age. However, that doesn’t mean that you have to be nickeled & dimed for the ability to accept credit and debit cards.
The rest of this article will outline the credit card processing fees that are unavoidable by a small business & those that you can get around if you choose the right provider.
Payment Processors vs Payment Facilitators: Learn How To Avoid Additional Fees
Due to the high demand in the market for payment solutions, there are tons of entities trying to get a piece of the pie. Specifically, third-party payment processors & ISOs resell the services of a company that actually facilitates a credit or debit card transaction through a payment gateway.
As a result, third-party processors & ISOs must charge a markup for their services.
Payment facilitators, on the other hand, eliminate middlemen from the equation & provide the leanest pricing in the industry.
When you work with a payment facilitator, you open a merchant account directly with them. As a result, you eliminate most, if not all, unnecessary fees when working with a payment facilitator.
Avoidable Credit Card Processing Fees
Now that you can discern between the two types of merchant services providers, we can now dive into a breakdown of credit card processing fees.
If you look at your merchant statement & find it hard to make sense of all the numbers on it, then you’re not alone. This is done by design. The more complex your merchant statement is, the easier it is for “less than transparent” payment companies to sneak in unnecessary fees to grow their margins.
Here are some monthly fees that you can avoid:
- IRS Reporting Fees: The IRS does not charge payment processors a reporting fee. Therefore, an IRS Reporting Fee is most likely a fabrication.
- PCI Compliance Fees: Maintaining PCI compliance at the merchant-level does not cost any money. Therefore, a PCI Compliance fee is often unnecessary.
- Statement Fees: Unless your statement is being physically mailed to your address, then there is often no cost associated with the delivery of your monthly statement.
- Payment Gateway Fees: In essence, the use of a gateway is the service provided to a merchant. Therefore, a ‘payment gateway fee’ is the service fee associated with the service. While this fee may not be completely avoidable, it can be negotiated.
Take a look at your merchant statement to see if you can spot any of these fees. If you can, then your current provider is most likely using these “hidden fees” as markups in disguise.
Unavoidable Credit Card Processing Fees
In order to cover the unavoidable fees to process credit cards, let’s think about all the completely necessary parties involved in a routine transaction.
Necessary parties involved include:
- Credit card associations – Visa, MasterCard, Discover, American Express
- Card-issuing banks – the bank that issued the card (Chase, Wells Fargo, Barclay’s, etc.)
- Payment gateways – technology that facilitates transaction over a secure server
- The merchant’s bank (aka acquiring bank) – the bank with which the merchant has a business checking account
As you can imagine, all of these entities charge a fee for their involvement in the transaction process. These fees are unavoidable.
Interchange & Network Fees
Credit card associations collect interchange fees from the merchant’s bank & pay them to the card-issuing bank.
Card associations also take a fee themselves called a network fee.
Card associations hold a lot of power when it comes to credit card process fees. They set these rates themselves. As such, everybody else in the process (you the merchant, card-issuing banks & acquiring banks) are price receivers.
Interchange Mainly Depends On The Card Association
To illustrate the notion of interchange & how impactful it can be, think about how often you visit a business that doesn’t accept American Express. The reason many business owners avoid AMEX is that the interchange rate set by the organization is generally higher than other card networks.
In addition, rewards cards & other credit cards have higher interchange rates across all card networks.
As a result, many merchants refuse to accept card types with higher interchange rates to minimize the credit card processing fees they incur.
However, this is not the best business practice. By limiting the methods of payment that you accept, especially the popular ones, you make it inconvenient for your customers to do business with you.
So what can a business owner like you do? You can eliminate as many of the unnecessary fees as possible. By doing so, you’ll have more resources to offset the unavoidable cost of interchange.
A Word On Flat Fee Pricing
With all this talk of card associations, interchange & network fees, you may be wondering how it’s possible for some merchant services providers to offer flat-fee pricing.
What these businesses do is offer a bundled rate that essentially charges you a single fee on all card types so that you don’t have to worry about all the various interchange rates. What makes this appealing to merchants is consistency in their credit card processing fees.
And by leveling off the pricing of all card types, it’s no longer a burden to accept one card type as opposed to another. Simply accept all card types & pay a single rate on them.
For this reason, flat rate pricing is generally the leanest model in the industry. The average flat rate is 2.79%-2.9% plus a transaction fee. (CardFellow) However, our very own flat-rate program comes in at 2.5% + $0.10 per transaction for in-person payments.
Learn About Our Payment Facilitation Program
After years in the payments industry, we finally said, “Enough is enough,” and became a payment facilitator so that we don’t have to include third-party payment processors to get our clients’ money from point A to point B.
The payment facilitation model is the leanest, most transparent model in the payments industry. With the understanding that accepting payments is a common practice in business, payment facilitators have chosen to make the required solutions more accessible to business owners.
We are able to offer these benefits because we own the payment gateway & do not have to charge a markup for the service of processing transactions.
However, this comes with a great cost as the requirements for becoming a payment facilitator are comparable to that of becoming a small bank.
Nevertheless, by eliminating middlemen, payment facilitators are able to eliminate unnecessary fees, only charging merchants for the costs involved in the actual processing of transactions.
Your Bank Won’t Offer 2.5% Flat Rate & Neither Do Our Competitors
Our pricing structure is as follows:
- Card present transactions – 2.5% + $0.10 per transaction
- Card not-present transactions – 3.05% + $0.10 per transaction
- $0 in unnecessary fees
- Free merchant account set up through our online portal
That’s for all card types! The reason we offer flat rate is pricing is to offer our clients transparency & consistency. To see how our pricing stacks up to the competition, click here.