Credit card processing fees: the complete guide for small businesses.

Credit card processing fees: the complete guide for small businesses.

As a small business owner, you are faced with many financial choices. One of the most significant involves everything having to do with processing customers’ credit cards. Since credit card processing fees will represent a significant expense for your company, it is vital to understand them in detail.

Credit card processing fees defined.

At their core, processing fees are what you pay to accept card payments from your customers. However, there are several parties and the costs involved. Therefore, understanding the process can get dicier than it might first appear. There are three specific types of industry standard fees that you will be expected to pay.

Transaction fees.

These are charged every time a customer taps, swipes, or dips their card in order to make a payment to you. Transaction fees are made up of interchange rates, assessment fees, and payment processor markup.

  • Interchange rates are fees, usually a percentage of the sales amount, that the customer’s credit card-issuing bank charges the receiving bank. As the merchant, you may pay some or all of this non-negotiable charge. Interchange rates vary according to factors such as the credit card brand, the type of card (debit or rewards card, for example), whether your business is deemed to be high-risk and how the payment was done (swiped, online, manually entered, etc.)
  • Assessment fee. This is the fixed, non-negotiable fee that the credit card network charges per transaction. Many factors go into determining how it is calculated, but one of the most important is the risk level of your business. If you are perceived as more likely than average to default on your payments, you will be placed in the high-risk designation and will pay accordingly.
  • Payment processor markup. The company that does your small business payment processing needs to make a profit as well, which is generated through these markup fees. The amount you will pay will depend on the type of package you purchase. Tiered plans determine how much you will pay based on the riskiness of the payment type. Interchange-plus plans allow you to pay the interchange fee along with a set percentage charge or additional per-transaction fee. In flat-rate plans, you are charged the same fee regardless of the transaction type or risk level.

While interchange rates and assessment fees are out of your control, you do have some options when it comes to markup charges. Therefore, it is always in your best interests to compare several payment processing companies before you sign on the dotted line. If possible, the one you choose should not lock you into a long-term contract. With this added flexibility, you have extra negotiating power and can more readily change to a different small business payment processing provider if your business grows or other conditions change.

Flat fees.

Your credit card processor may also have fees in place for various services, equipment, and merchant agreements. These will probably include the following:

  • Monthly minimum processing fees. Many companies set a minimum monthly charge amount. If your sales fall below it, you will be charged a fee amounting to the difference between the minimum and the sales amount you made in that month.
  • Equipment rental or lease fees. These are charged if you are leasing or renting your terminal or other equipment from your payment processing company.
  • Withdrawal fee. This may be charged if you take funds out of your processor account.
  • Payment gateway fee. If you sell goods or services online, you may need a payment gateway. 
  • Statement fee. This may be charged if your provider sends you paper statements.
  • Payment card industry (PCI) fees. Your provider may charge these fees to cover the cost of complying with credit card industry data storage and security standards.
  • Setup fees. This one-time charge often covers the cost of in-person or phone support as you get your hardware and software up and running.
  • Terminal purchase.
  • Early termination fee. This may be charged if you try to get out of your contract early.

Incidental fees.

Your credit card processing company also might impose additional fees, should specific circumstances arise. These may include the following:

  • Dispute fees — charged every time a customer disputes a transaction.
  • Chargeback fees — charged if a dispute leads to a refund to the cardholder known as a chargeback.
  • Non-sufficient funds fee — assessed if you don’t have enough money in your account to pay your payment processor.
  • Batch payment processing fee — might be imposed by your processor whenever you submit several payments at the same time.

Just how much, in general, can you expect to pay in credit card processing fees? As we have said, several factors come into play in determining this amount, including the industry in which you are doing business, how the payment is being made, and the kind of credit card being used, among other things. On average, industry standard is anywhere from 1.7 to 3.5 percent of each transaction in transaction fees. The proceeds of those fees are split among the customer’s credit card company, the receiving bank, the card network and, of course, your payment processor. In addition, you can reasonably expect to pay anywhere from $5 to $100 per month in flat and incidental fees with any payment processor. While that is a vast disparity, your fees will depend on your specific processing company, as well as the number of other factors such as the number of disputes and chargebacks that happen in any given 30-day period.

As you can see, credit card processing fees can represent a not-insignificant cost for your store or company. Nevertheless, much of what you pay is fixed and not subject to bargaining or negotiation. Taking time to carefully choose the most reputable and cost-effective payment processing company can go a long way toward reducing the charges that you can control. For the rest, simply consider them to be part of the cost of providing your customers with the most modern and secure ways to pay for your goods and services.