How much credit card processing really costs?

Ever stare at your credit card payment processing statement feeling like you’re deciphering a secret code? Numbers, percentages, and cryptic abbreviations leave you wondering exactly how much those swipes are really costing your business. You’re not alone in this struggle. Credit card processing fees can be a confusing maze for businesses that accept credit card payments. But fear not! This blog will shed light on the different types of fees lurking in your statements, empowering you to take control of your business finances.

We’ll break down the interchange fees, assessment fees, and more. Understanding what these fees are. Let’s navigate this labyrinth together and ensure you are not paying more than necessary to accept those convenient plastic payments. By the end of this blog, you’ll be equipped to make informed decisions about your credit card processing solution!

What are credit card processing fees?

Credit card processing fees are the charges that merchants pay to credit card companies and payment service providers to authorize and complete card transactions. These fees, known as the merchant discount rate, are split among the financial institutions involved in processing the payments. They include:

1. Interchange fees: These fees are the largest part of the merchant discount rate and go to the issuing bank that manages the credit card used for the payment, such as Chase, Citi, or Bank of America.

1. Assessment fees: Directed to the card networks like Visa, Mastercard, Discover, and American Express, these fees cover their operational costs and are set by the networks.

1. Payment processor fees: These costs are paid to the processor, the company that handles the logistics of processing card payments for your business. Examples include Square, Stax, and Helcim.

Your payment processor may either deduct the credit card processing fees from your bank account as a lump sum at the end of each month or reduce the amount of each deposit by the fee amount.

How much are credit card processing fees?

The typical cost of credit card processing per transaction ranges from 1.3% to 3.5%. The specific fees a business incurs depend on the chosen payment company (such as American Express, Discover, Mastercard, or Visa), the merchant category code (MCC), and the type of credit card used. While the table below displays interchange and assessment fees, processing fees can differ significantly based on the credit card provider, card type, and MCC.

Card Network???????????? Interchange Fee (%)???? ???????? Assessment Fee (%)

Visa????? ???????????????????????? 1.15% – 2.40%????????? ?????????? 0.11% – 0.15%

Mastercard????? ??????????????1.15% – 2.60%????? ?????????? 0.11% – 0.15%

American Express??????? ??2.30% – 3.50%??? ?????????? 0.10% – 0.15%

Discover??????????? ???????????? 1.35% – 2.60%???????? ?????????? 0.11% – 0.15%

How do credit card processing fees function?

Understanding credit card processing fees depends on the pricing model adopted by the payment processor. Here are the main categories:

1. Flat-rate, or blended, pricing: With this model, you pay a fixed percentage of the transaction total plus a set fee. For example, you might pay 2.6% plus 10 cents for in-person transactions. Services like Square, Stripe, and PayPal operate on this structure, offering simplicity but potentially higher costs.

2. Tiered pricing: This system categorizes transactions into qualified (like debit cards), mid-qualified (cards with certain rewards), and non-qualified (corporate cards). Rates vary depending on the card type, usually represented as a percentage plus a flat fee. While less transparent than flat-rate pricing, it can be cheaper overall.

3. Interchange-plus pricing: Often the most cost-effective, this model combines the interchange rate set by credit card networks with a defined markup. The markup includes a transaction fee paid to the processing company. Rates vary based on factors like card network, card type, and transaction method.

4. Membership-based pricing: Some providers offer this option, where you pay a monthly or annual membership fee instead of a percentage of sales. Additional per-transaction fees may apply. While potentially the cheapest for high-volume businesses, it requires careful consideration of the overall cost.

How to calculate credit card processing fees?

To calculate credit card processing fees, you can use the effective rate formula:

(Total amount deducted for processing / Total monthly sales) * 100 = Effective rate %

This method helps determine the overall cost of processing credit card transactions. By dividing the total amount deducted for processing by the total monthly sales and multiplying by 100, you get the effective rate. The effective rate represents the percentage of your total monthly sales that the credit card company charges you for accepting credit card payments. It’s a useful metric for understanding the true cost of processing credit card transactions.

Conclusion

Understanding credit card processing fees is crucial for managing business finances, especially for those seeking a reliable Credit Card Payment Solution to accept credit card payments. Fees vary depending on factors such as the chosen payment company, card type, and pricing structure. Typical fees range from 1.3% to 3.5% per transaction. Different pricing models, including flat-rate, tiered pricing, interchange-plus pricing, and membership-based pricing, contribute to the complexity.