A Merchant's Breakdown of Credit Card Processing Fees

Credit cards are here to stay; the modern customer craves the convenience of paying with credit cards - even for B2B payments. There are many benefits to accepting credit cards, but it also comes with a cost. Understanding credit card processing fees can be a challenge; this post is your guide to breaking down and understanding your credit card processing fees.

Types of fees

• Processing fees: calculated on each transaction (i.e. discount rate, non-qualified rate, card brand fee).
• Situational fees: charged when an event like a chargeback occurs (i.e. cancellation fee, chargeback fee, international fee).
• Fixed fees: added on top of the processing fees (i.e. annual fee, monthly fee, network access fee).

What does it depend on?

• Industry: If your business is deemed high risk, it will translate to an increased fee.
• Type of transaction: Your fees are also dependent on how you accept the credit card payment. Your fees are lower when you swipe the card through a traditional terminal in-store, compared to when you process an online transaction or key in a phone or mail order.
• Credit card types: Each credit card has a different interchange rate, the "cost" of a card if you will. For example, a basic, no rewards credit card will cost less to accept than a rewards card.
• Processing volumes: As your processing volume increases, you're eligible for customized fees that are typically lower.
• To learn more, here is the full history of credit card payments.

• Qualified rate promotion: Some payment processors may use the qualified rate (lowest possible rate) to get you to sign up. This is misleading because not all of your transactions will fall into that category, so your statement will undoubtedly be higher than you expect.
• Undisclosed fees: Some payment processors have extremely confusing statements that are hard to decipher, riddled with hidden fees that you weren't aware you would be charged. Make sure your processor explicitly outlines exactly what you'll be paying for as well as the complete terms of your agreement.

• Interchange plus: You pay the interchange rate of the card, a transparent markup (fixed percentage), and a per transaction fee that's set by the processor.
• Interchange differential: You pay the qualified rate, the non-qualified fee (fee charged for anything other than a basic card or a card not present transaction), the card brand fee, and the interchange differential fee.
• Flat: You simply always pay a flat, fixed percentage. This pricing structure does not service high-processing businesses well because the flat rate stays the same, so the more you process, the more you pay.
• Tiered: This structure categorizes transactions into tiers, each corresponding to a fee - and to make things more confusing, the fees are not standard across processors. There can be many tiers but the most common three are qualified, mid-qualified, and non-qualified.
• Billback/ERR: You pay a flat rate on the first statement for all transactions and then a second charge on the next bill for all the transactions that were greater than that initial flat rate.

Once all the fees are deducted from the transaction, the remaining amount is typically deposited into the merchant's account within 1-2 business days.

It's important to understand what you pay to get paid so you know the true overhead of your business and whether you're paying a fair rate.

A Merchant's Breakdown of Credit Card Processing Fees was originally published on Due Payments Blog by Alice Chen.