Credit Card Processing Fees

What are credit card processing fees?

For every business transaction that involves credit cards, there are credit card processing fees that are charged by the merchant service providers (MSPs). For this fee, the MSPs will handle the processing of all credit card transactions for your business; from collecting interchange fees to transferring the funds from the merchants' bank and the credit issuing bank. Generally speaking, these processing fees are around 2% of each purchase. In this case, the 2% would be referred to as the discount rate, which is the agreed upon percentage of every sale that goes towards the processing fees.

The good news is as a business owner, you could shop around to find the payment processor with the lowest processing fees to maximize your profits. The top MSPs are MasterCard, Visa, American Express, and Discover, with American Express having the highest fees at 3%. This explains why some businesses do not accept American Express. In the long run, after hundreds of thousands of transactions, you can end up saving a significant amount of money with even just a 0.01% difference.

Common credit card processing fees include transaction fees and incidental fees. A merchant may incur these fees as credit card vendors reconcile authorized payments from a merchant’s feed and transfer those funds from a credit card network to the merchant’s acquiring bank.

How do credit card processing fees work?

Transaction Fee

Different card and account providers calculate transaction fees in diverse ways. There are generally two main methods on how these fees are understand which is a flat fee and a percentage fee. A flat fee occurs when an account provider charges a fixed payment processing fee for each transaction, no matter the amount of money that has been transferred. On the other hand, a percentage fee deals with the account provider who in turn retains a percentage of the transferred funds which is usually around 2-3%. Transaction fees are taken as a percentage of an individual sale and accumulate regularly on a once per sale basis. These fees may vary from one credit card vendor to another. Typical costs for retail CP transactions range from 1.95% to 2%. The average range for CNP transaction fees falls between 2.3% and 2.5%.

Incidental Fee

Incidental fees may be charged by a credit card processor in response to irregular circumstances. This type of fee may be charged to a merchant in response to a chargeback from an issuing bank.

Can merchants charge credit card processing fees to customers?

Yes, merchants can pass credit card processing fees on to customers. The merchant may choose to pass on only one type of fee to their customers. In this limited case, the extra cost incurred by the customer is called a Convenience fee. In the case that all processing fees are passed on to the customer, these fees are known as surcharges.

Other type of fees that are not listed may include checking account fees, monthly and annual fees that are considered management fees, overdraft charges in you withdrew too much money from your account, statement fees if you requested a paper statement, or termination fees if you decide to close your account while you are still within a minimum contract period. It is imperative to be aware of the various charges that may occur to your account. In addition, there are some accounts that do not necessarily charge monthly or transaction fees. A fee free account means that whether you make a lot of transactions or only a few, you will not accumulate costs due to credit card processing fees. A positive of these accounts is that they do not charge for periods of inactivity or for a low account balance which is good if you have a small amount of money to manage.