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Merchant Credit Card Processing Fees: How They Work

BluePay is pleased to bring you this valuable information from our partner, Due, makers of a free digital wallet that allows users to easily make and accept payments online.

If you plan on processing credit cards online or in your store, you will quickly learn that there are always fees involved. Sometimes, there’s a lot of fees, especially if you don’t do your homework and find a merchant credit card processing company or top payments company that understands the importance of providing value and creating long-term, mutually beneficial relationships over getting the largest profit margin for themselves.

Before doing your research and comparing how each merchant credit card processing stacks up with their fees, you first need to educate yourself to know what costs exist and how they work so you can better determine the right partner for your payment processing needs.

Fee Types

There are three categories of credit card processing fees, including transactional, flat, and incidental. Transactional fees are included with every transaction that uses a credit card for payment.

On top of these transactional fees, you may have to pay flat fees that will show up on the monthly statement your merchant services company sends you.

Lastly, related fees are only charged when a particular event occurs that warrants that charge. These will all be discussed below, so you have a better understanding of how all these credit card processing fees work.

Markup or Wholesale Fees

The three categories above of credit card processing fees fall into either the wholesale fee group or the markup fee group. Wholesale fees, which can also go by terms like “pre-markup” or “base” fees, are the wholesale cost of the sales transaction. Credit card associations like Visa and MasterCard as well as the bank that has issued the credit card are the ones that determine the wholesale fees and maintain a consistent cost across all providers.

Markup fees are where a processor is trying to make money by passing on costs to you for various aspects of the credit card processing. While every company is supposed to make a profit, look for a processing partner that is transparent and modest in the number of markup fees they pass on to you. Fees are one area where you can compare processors, unlike the wholesale prices.

Now it’s time to look in greater detail at the three categories of credit card processing fees so you have an understanding what you have to pay, what costs you can negotiate, and what fees you can avoid paying.

Transactional Fees

Interchange reimbursement fees and assessments originate from card-issuing banks and the credit card associations. These charges are the largest expense merchants should have to pay per transaction and per month. Interchange fees include a percentage of each transaction plus a flat per transaction fee (for example, 2.10% + .10 per transaction).

Any further assessments are based on a percentage of the total transaction volume you produce for the month, including fees like Merit 1/ecommerce/CNP and NABU/APF/data usage. Each card association publishes their interchange and assessment fees online, so you have a clear understanding of what you have to pay to accept credit cards.

Download Whitepaper: Understanding Interchange Pricing For Your Business

Flat Fees

There are numerous flat fees to consider. If you have a physical location, you may have to pay a terminal fee. However, it may be better to buy a terminal rather than lease it.

Additionally, there are payment gateway fees if you only accept payments online. PCI fees are paid to the payment card industry for compliance or noncompliance. Make sure you are actually getting compliance from your credit card processor if they are asking you to pay this fee. Also, many providers don’t even charge for compliance so it pays to shop around.

Other flat fees include an annual fee, which is highly unnecessary as is an early termination fee. The best thing you can do there is shop around and avoid signing any contracts. There are also monthly fees, monthly minimum fees, statement fees, IRS report fees, online reporting fees, and network fees. These are all reasons to research and compare processing companies first.

Incidental Fees

Like flat fees, there are numerous ancillary fees with many being negotiable. There is an Address Verification Service (AVS) and Voice Authorization Fee (VAF) that help you with security. Additionally, the are retrieval request and chargeback fees, which relate to any time a customer questions a charge on their account related to your business. Other potential incidental fees include a batch fee when you submit a batch of transactions and

Other potential incidental fees include a batch fee when you submit a batch of transactions and an NSF fee if you don’t have enough funds in your bank account to cover all these fees.


Final Thoughts

Every credit card processing provider has a different set of costs associated with their merchant account services. While some fees are unavoidable, others can be negotiated or eliminated like most of the flat fees listed. If you process a lot of transactions each month, use this as a bargaining chip to get those fees down. Also be sure you select a credit card processor who is transparent with their fees, so you don’t end up with any surprises later on when you get your first credit card processing statement.

Here at BluePay, we specialize in saving your business money. Contact us today and we can review your past credit card processing statements to see how we can save you money. Click the button below to get started. 

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Topics: Small Business Tips, Enterprise Business Tips, Getting Started with Payments

Welcome to the BluePay Blog!

Whether you're a small business, an enterprise corporation, a financial institution, or a software partner, we have created a series of blog posts to help you and your customers, learn more about the complex nature of payments. Take a look to learn how payments can help to simplify your business operation, and may even help to grow your revenue.

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