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An In-depth Guide to Credit Card Processing Fees

Understanding how credit card processing fees work is one of the most important steps in developing a profitable business. Knowing what determines credit card processing fees and how to negotiate them can save you tons in overhead expenses. 

Now, with this article in hand, you’ll have some great tips on where to start and what questions to ask when it comes to negotiating with your processing company.

Credit Card Processing Fees: What are the Different Types?

There are a few different types of credit card processing fees that you may encounter. Here’s a brief overview of each:

  1. Interchange fees

These are set by the card associations (Visa, Mastercard, etc.) and paid to the issuing bank. They vary depending on the type of card being used and the transaction amount.

  1. Assessment fees

These are also set by the card associations and paid to the acquiring bank. They cover things like fraud prevention and chargebacks.

  1. Processor fees

These are charged by your credit card processor and typically include a per-transaction fee, monthly statement fee, and/or monthly minimum fee.

  1. Gateway fees

If you use an online payment gateway, you may be charged a gateway fee in addition to the other processing fees.

  1. Discount rates

This is a percentage of the total transaction amount that is paid to the processor as a fee. It is calculated based on your volume of sales, average transaction amount, and other factors.

  1. Transaction fees

 In addition to the discount rate, you may also be charged a per-transaction fee for each credit card transaction processed.

What Factors Determine Card Processing Fees

There are a few factors that go into how much your credit card processing fees will be.

 The first is the type of card you’re using. If you have a business credit card, you can expect to pay higher fees than if you have a personal credit card. 

The second factor is the merchant category code, or MCC. This code is used to classify businesses by the type of goods or services they provide. businesses with a higher risk of fraud (such as online gambling or adult entertainment) will have higher MCCs and, as a result, higher fees.

Finally, the ticket value also plays a role in determining the fee. Larger transactions will typically have higher fees than smaller transactions.

How to Discuss Favorable Credit Card Processing Fees

If you’re like most business owners, you want to save money wherever you can. And when it comes to credit card processing fees, that can be a big challenge. After all, these fees can take a significant bite out of your profits if you’re not careful.

But there is some good news. If you know how to negotiate with your credit card processor, you can get more favorable terms and lower your overall costs. Here are a few tips to help you get started:

  1. Know what you’re paying in fees. 

This may seem like a no-brainer, but it’s important to have a clear understanding of the fees you’re currently paying. Only then can you hope to negotiate a better deal.

  1. Do your homework. 

Once you know what you’re paying in fees, it’s time to do some research and see what other processors are charging. This will give you some negotiating power when it comes time to talk with your current processor.

  1. Be ready to switch processors. 

If your current processor isn’t willing to work with you on fees, be prepared to switch to another one. This is sometimes the only way to get the terms and rates you deserve.

  1. Know when to negotiate.

You should always be willing to negotiate fees, but you should have a good reason for doing so. For example, if you’re applying for a large cash advance that will be repaid in the next 30 days, the bank will likely reduce fees (or waive them altogether) because it can recoup most of its losses from interest payments.

Be ready to walk away,

Sometimes it’s not worth renegotiating fees. This is especially true if you’re short on time and can’t afford to wait around while your processor haggles with the bank over fees that are already ridiculously high– or if you’re becoming frustrated by how much time and effort they’re requiring to do so.

Summary

Understanding credit card processing fees can help you negotiate reasonable rates for your small business.

Author

Audrey M. Jeter

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