Their cards may not be accepted at quite as many businesses as those of Visa and Mastercard, but they do get to keep both the interchange and assessment fees, giving them a much larger cut of each transaction. Note: These aren't the highest and lowest interchange fees for each payment network. We've removed some of the outliers like Discover's 0.
Visa credit card processing fees are the lowest overall, but Mastercard and Discover aren't far behind, and they fall into similar fee ranges. For many merchants, processing fees will be almost the same whether the customer pays with a Visa, Mastercard, or Discover credit card. American Express has consistently been the most expensive payment network, which is one reason why it's accepted by fewer merchants.
In , American Express announced the largest drop in its fees in 20 years. That brought it more in line with other credit card networks, although it still charges the most on average. With each payment network, there are several factors that affect where your interchange fees fall within the ranges above.
Here are the most significant:. American Express also uses transaction amounts to determine its interchange fees, with higher-value transactions costing merchants less. Payment networks generally update their interchange fees on a yearly basis.
This doesn't mean they raise rates every year. As mentioned before, American Express lowered its credit card processing fees in Visa and Mastercard have been planning to increase credit card fees for certain types of merchants. There were reports that both were considering an increase of 0.
While that didn't happen this year, it's a significant change that we could see happen in Although it may seem like the card networks benefit the most by raising fees, it's actually the banks. Remember that interchange fees go to the bank that issues a credit card.
The banks that partner with Visa and Mastercard to issue their credit cards are the ones that will collect those additional fees. The assessment fee is the payment network's cut, and it's a much smaller portion of each transaction. That being said, the differences in assessment fees between each payment network are minuscule. While merchants must pay the interchange and assessment fees set by the payment networks, they have more flexibility with payment processors.
Not only are there many credit card processors available, all with their own pricing strategies, but merchants may also be able to negotiate these rates. The following types of payment processing models are available: interchange-plus, flat rate, subscription, and tiered. Here's how each model works and the fees you'd pay with several popular payment processors.
The interchange-plus model keeps all your fees separate. The payment processor charges you exactly what the payment network charges on the transaction, and it adds its own separate markup and requires a flat fee per month.
Note that even though this model is called "interchange-plus," the payment network's assessment fee is charged as well. Let's say your retail business chooses Helcim. On each transaction, Helcim would deduct the interchange fee, the assessment fee, and its own fees of 0. This model is a popular choice because it's affordable for all types of businesses and it has a transparent fee structure. On every sale, you'll know exactly how much the card network and your credit card processor charged. The flat-rate model is all about simplicity.
You're charged the same rate on every transaction, which makes it easy to predict your payment processing costs note that it's the same rate , not the same fee , which is why this is a "flat rate" instead of a "flat fee". And you can use this model without paying a monthly fee. That simplicity comes at a cost, though. Under the flat-rate model, credit card fees can be much higher. There is one key advantage PayPal and Square offer, which is that they don't have monthly fees.
They could be more affordable if your business has very low sales volume and wouldn't save enough in credit card transaction fees to offset the monthly cost of an interchange-plus processor. With the subscription model, you sign up for a membership with the payment processor and pay a monthly fee. You'll then pay the base costs on each transaction plus a very small payment processor fee. You may be wondering what separates the interchange-plus and subscription models, considering their similar fee structures.
In this case, it's a difference of degrees. The subscription model has much more expensive monthly fees in exchange for much cheaper transaction fees.
You'll likely get the lowest credit card processing fees, and that helps justify your payment processor's monthly fee. In the tiered model, each transaction is grouped into one of the payment processor's tiers, and each tier has a set fee amount. The payment processor determines which transactions go into which tiers, and it often bases this on a transaction's interchange fees, which are included in the rate. One popular setup with this type of payment processing has the following tiers: qualified, mid-qualified, and non-qualified.
The qualified tier has the lowest transaction fees, followed by the mid-qualified tier, and the non-qualified tier is the most expensive. The tiered model usually isn't a good choice, because it tends to be more expensive than other options.
Since many types of transactions are grouped into a limited number of tiers, some transactions will have much higher processing fees than they would under other pricing models.
In addition to the costs above, merchants that accept in-person transactions also need equipment. Costs vary significantly depending on the merchant's needs. When your business processes credit card payments, there will be multiple fees taken out of the total transaction amount. The non-negotiable credit card network fees can vary:. The most important factors in what your business pays will be its MCC and the type of credit card the customer uses. Next, your payment processor will take its cut, unless you've chosen a processor that charges one flat rate to cover all the fees in the transaction.
With credit cards growing more and more popular, the typical merchant doesn't have much of a choice but to pay these fees to the card issuer and payment processor. By knowing how much you'll pay on each transaction, you can price your products appropriately and ensure you're making enough money on each sale. Some businesses also charge a credit card convenience fee or offer a cash discount to cover the cost of the processing fees above.
To offset processing fees, many businesses especially those that tend to handle smaller transactions choose to require a certain dollar threshold before they accept credit cards. Several states require credit card limits to be the same regardless of credit card issue. Fees are dependent on card functionality debit, credit as well as the card distributor American Express, Visa, Mastercard.
Often credit cards are more expensive to process than debit cards. Many banks charge a flat fee to process debit card transactions, regardless of the amount charged. Alternatively, a debit card that requires a signature to authorize is processed like a credit card. Charging a customer to use a credit card, also known as a convenience fee, is illegal in some states. Currently eleven states have a law that prohibits merchants from charging a convenience fee to customers.
A retailer may, however, offer discounts for the purpose of inducing payment by cash, check, or other means not involving the use of a credit card. We believe credit card processing should be as easy and affordable as possible. Contact our sales department to learn more.
Not sure what your rate is with your current merchant services? Square helps take care of the day-to-day stuff, too. From point of sale to payroll, we have all kinds of services to help you save time and run more smoothly.
Back to Town Square. Table of Contents Who decides on credit card processing fees? Deep Dive Who decides on credit card processing fees? What goes into average credit card processing fees? How the transaction is processed In-person card present transactions at the point of sale POS typically have lower rates compared to card not-present CNP transactions online, over the phone, invoices, or mail order.
The amount being charged Merchants with small ticket sizes and a large amount of sales can qualify for lower interchange rates to help reduce their costs. Dues and assessments Payments processors have to collect something called dues and assessments for the card networks.
Mastercard Discover Visa 0. Our flat payment processing fee includes any fees incurred by interchange, as well as additional dues and assessments or other fees that come from processing cards such as American Express Other miscellaneous credit card fees and costs you might be paying Types of Fees What Is It? There are a number of ways to reduce your credit card transaction fees.
Here are a few: When possible, accept cards in person. Try to accept cards in person whenever possible if it makes sense for your business. Reduce your risks of chargebacks. However, chargebacks that occur as a result of fraud are a bit more difficult to avoid.
The more chargebacks you get, the higher the fee. If you have too many chargebacks in a short period of time, you could lose your merchant account that enables you to process credit card payments. Is your system secure? Is your customer service up to par? Also, make sure you are addressing chargebacks in a timely manner. Consumers generally have between 60 to after their days after their purchase to file a chargeback, and merchants have about 45 days to respond or dispute it.
If the chargeback is deemed valid, the merchant will then have to provide the necessary documentation to prove its position before having the charge cleared. Sometimes, chargebacks are inevitable, especially in the case of fraud; however, you can lessen their occurrences by practicing the right prevention methods.
The best way to prevent chargeback fees is by adhering to the policies and guidelines of each payment processing network. Typically, this involves obtaining verification like a signature from a customer, ensuring the credit card being used is not expired and is signed on the back and adhering to PCI rules and current security standards, like EMV readers. Additionally, ensure your customer receives the merchandise or service as expected. For instance, if you are an e-commerce business, this means shipping the products in a timely manner.
The more you focus on customer service after the sale, the less motivation customers will have to force a credit card chargeback. CO— aims to bring you inspiration from leading respected experts. However, before making any business decision, you should consult a professional who can advise you based on your individual situation. CO—is committed to helping you start, run and grow your small business. Learn more about the benefits of small business membership in the U.
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