Have you ever sat down with your credit card processing statement and wanted to understand the costs and fees a little better? There is such a wide range of fees and costs associated with processing credit cards that it can be beyond baffling to business owners. Generally, costs incurred are directly dependent upon who you have choosen as your merchant services provider. Not all merchant service providers are created equal. Each have their own fee schedules and operating costs, called discount rates. The only constant is the interchange rate, which is set by Visa/Mastercard. This is the percentage your merchant service provider pays on your behalf to process Visa/Mastercard transactions. This fee is directly passed on to you. Anything charged above and beyond this set interchange rate is determined by the processor.
According to Visa, “Visa uses interchange reimbursement fees as transfer fees between financial institutions to balance and grow the payment system for the benefit of all participants. Merchants do not pay interchange reimbursement fees; merchants pay “merchant discount” to their financial institution. This is an important distinction, because merchants buy a variety of processing services from financial institutions; all of these services may be included in their merchant discount rate, which is typically a percentage rate per transaction”.
Let’s take a closer look at the discount rate. The discount rate will be the primary fee on your processing statement and is the percentage the provider charges on each transaction. Businesses discount rate is determined by criteria such as: Risk, average ticket, business/transaction type, and ticket volume. High risk merchants or businesses that do not have access to their customers credit card, will pay a higher discount rate. Certain credit cards like rewards cards will also increase the discount rate.
Essentially, there are two discount rates available from your provider. The first discount rate is for card present merchants. These businesses are brick and mortar locations where a customer will physically hand the credit card to the merchant to be swiped. These types of transactions are considered low risk. The signature is received and verified by the merchant. The discount rate for a card present transaction is between 1.3% to 2%.
“Thanks to wireless technology, mobile merchants like excursion drivers can now receive the lower discount rate” said Tony Shap of PaymentMax. “In the past, on-th-go merchants with no access to phone lines or electricity had to pay the higher discount rate. “Now wireless credit card machines like the Nurit 8000G allow them to swipe the customers card and receive their signature right on the screen, saving them money”, said Tony.
The second discount rate is slightly higher and is reserved for card-absent merchants. These are your mail-order, internet, or phone order companies. Since the card is not physically seen and lacks a customers signature, the risk of fraud goes up. The typical discount rates for card-absent transactions are 1.99%-3.0%.
Other credit card processing fees include per transaction fee and monthly fees. These fees are not set in stone and can vary between processors. Typical per transaction fees are $.20 to $.30 for card present transactions and $.30 to $.50 for card-absent transactions. According to www.wikipedia.com , “In the United States, the fee averages approximately 2% of transaction value”. Monthly fees average around $10 per month.
Lastly, be aware of any miscellaneous fees such as reprogram, annual, and statement fees. These additional fees are set by the processor and can differ from one company to the next.
