Thursday, August 11, 2022

How Much Are Credit Card Fees For Businesses

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How Much Will I Pay In Credit Card Processing Fees

FAQ: Credit Card Processing Fees For Small Businesses

Use this calculator to see how monthly payment processing costs will vary based on transaction methods and rates. If you have a payment processor in mind, enter the provider’s rates in the calculator or an estimate of average rates for interchange-plus pricing to estimate how much the service will cost each month.

Here are the most common types of transactions to consider:

  • In-person: A customer pays in person and swipes, taps or inserts a credit card.

  • Card-not-present: A customer pays by credit card online or a business manually enters credit card information to charge the customer remotely.

  • Alternative methods: A customer pays outside of traditional credit card methods, such as with QR codes or contactless apps like Apple Pay.

What Should We Do About Interchange Fees

Again, this is profit that goes directly to credit card issuers, not to small businesses. And, in a year like 2022, where small businesses are suffering more losses than profits, perhaps the best thing to do is lower the fee.

Right now, theres a growing movement in Canada to reduce interchange fees. In fact, many small business owners and merchants are eagerly awaiting the amendments to the Payment Card Networks Act, which will hopefully lower interchange fees and bring more regulation to those who set them.

For some perspective, Visa reduced its interchange fee back in 2014 from 1.6% to 1.5%. And at the end of 2020, both Mastercard and Visa committed to reducing fees from 1.5% to 1.4%. A reduction of just 0.1% saved small businesses around $1 billion every year.

If you want to help small businesses directly, perhaps you could be more conscientious about your form of payment. Paying in cash instead of card can help local businesses save money on fees, even if it means sacrificing rewards.

Of course, for large retailers, like Canadian Tire or Costco, these processing fees pail in comparison to profits. But for the local bookstore or the coffee shop on the corner, it might be kinder to use cash over credit cards.

The Motley Fool recommends Mastercard and Visa. Steven Porrello has no position in the companies mentioned.

Apply For The Prepaid Card Online

Once you have found a suitable prepaid card provider, you will then need to apply for the card online. In this sense, the application process is somewhat similar to that of a debit or credit card, insofar that you will need to provide some personal information. However, the process is significantly less bureaucratic, as the amount of information required is minute.

At this stage of the application process you will likely only need to provide the following information to be approved:

  • Full name
  • Mailing address
  • Email address

It is also important to note that some prepaid cards require an upfront fee to cover the cost of distributing the card to you. If this is the case, then you will need to pay the fee with your debit or credit card online. Once you have completed the online application process, it typically takes 7-10 working days for the card to arrive at your mailing address.

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Get The Latest Information

Visa uses interchange reimbursement fees as transfer fees between acquiring banks and issuing banks for each Visa card transaction. Visa uses these fees to balance and grow the payment system for the benefit of all participants.

Merchants do not pay interchange reimbursement feesâmerchants negotiate and pay a âmerchant discountâ to their financial institution that is typically calculated as a percentage per transaction. Merchants can receive a variety of processing services from financial institutions that may be included in their merchant discount rate.

How Can I Accept Credit Cards Without A Reader

2019 Credit Card Processing Fees May Surprise You
  • Navigate to Additional > Settings > Checkout > Payment Types under the Navigation Bar at the bottom of your screen.
  • You can enter a credit card manually by turning it on.
  • Keeping track of any transactions is easy with the keypad or by entering a custom amount.
  • When you are done processing the payment, tap Charge.
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    Is It Legal To Charge A Credit Card Processing Fee

    As stated above, surcharges are illegal in 11 US states and territories and may be regulated in other states as well:

    • California
    • Texas
    • Puerto Rico

    States where surcharges are legal usually allow businesses the freedom to choose the extra fee percentage assessed per transaction. The total allowed charge usually caps at 4%.

    Any convenience fee or surcharge assessed must be disclosed before any payment is made. Businesses who charge extra fees often post signs and have their employees disclose the fees whenever a customer opts for a card payment.

    Our advice is this: if youre planning to assess a convenience fee or surcharge to your customers, contact your processing provider and get legal advice. Your payment provider may have surcharge features baked into their services that are legally compliant. Thats the easiest way to start charging credit card fees.

    Other Fees To Be Aware Of

    Note that there are plenty of other credit card processing fees to be aware of. For example, you may face initial fees when you sign up for a credit card processing company that will provide you with terminals that help you process your transactions.

    Other fees you could face are all over the place but may include fees from your credit card processor each time a customer disputes a charge, fees for chargebacks, fees for non-sufficient funds to pay your credit card payment processor and more.

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    Possible Negatives For Your Customers

    Certain customers may be turned off by price hikes or extra fees. Its important to think of the branding implications for charging extra fees. For some customers, it can feel like a low-quality move.

    When your customers go to stores run by big businesses, theyre usually not assessed extra fees for using a credit card, so it can make your brand appear lower in value for tacking on credit card fees.

    The Case Before The Competition Tribunal

    Credit Card Fees Affect Small Businesses

    The Competition Tribunal “is a strictly adjudicative body that operates independently of any government department” that hears cases dealing with economic and business matters such as mergers, misleading advertising and restrictive trade practices .

    The argument before the Competition Tribunal was that Visa and MasterCard were engaging in anti-competitive behavior and their restrictive contracts allowed the two credit card companies to essentially dictate terms to merchants .

    These terms allowed Visa and MasterCard to charge transaction fees of over three percent in some cases, fees that, according to the Competition Bureau, were among the highest in the world and rake in $5 billion for the credit card industry each year.

    Wile the Competition Tribunal doesnt have the power to levy a monetary judgment against the two credit card giants it could force them to change their operating methods. The Competition Bureau wanted retailers to be able to do two things they were not allowed to do:

    • refuse to accept high-cost credit cards but still accept others from the same brand name.
    • add surcharges to counteract the higher transaction fees charged for premium credit cards.

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    What Are The Different Pricing Models For Processing Fees

    We noted how credit card processing fees can fall within a specific range for each of the major credit card networks, but part of the fluctuation can be attributed to the pricing model chosen for credit card processing fees. Merchants may have the option to accept a pricing model that suits their needs best, so its important to know how each pricing model works:

    • Tiered pricing: This type of pricing model comes with different pricing for transactions in different tiers or buckets. For example, certain qualified transactions may be charged a lower rate, whereas others require a higher percentage in fees. This type of pricing typically works best for merchants who process most of their transactions in the lowest tier.
    • Flat rate pricing: Flat rate pricing works exactly as it sounds. With this pricing model, the credit card processor will charge the merchant a fixed percentage of each transaction plus a small per-transaction fee . This pricing model makes it easy for merchants to anticipate their credit card processing costs over time.
    • Interchange Plus pricing: Merchants who are offered the Interchange Plus pricing model will pay the interchange rate for each transaction plus predetermined add-on fees. With Interchange Plus pricing, you may pay the interchange rate plus an additional percentage or a small fee per transaction.

    Withdrawing Cash From An Atm

    In a similar nature to traditional debit cards, most prepaid cards allow you to make withdrawals from an ATM. This makes it super convenient when you need instant cash as the prepaid cards relationship with either Visa or MasterCard will give you seamless access to millions of US cashpoints.

    As we will discuss in more detail further down, the fees associated with prepaid card ATM withdrawals are typically much higher than that of a debit card. You will likely need to pay the fixed-fee charged by the respective prepaid card issuer, as well as the fee charged by the specific ATM. On the flip-side, withdrawing cash with a prepaid card is usually much cheaper than a credit card which not only charges a fixed and variable fee on each usage, but you will have interest applied instantly!

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    What Percentage Do Credit Card Companies Charge Retailers

    All retailers that allow their customers to make payments via credit card have to take fees into account. So, what percentage do credit card companies charge retailers and what should your business plan for if it does a large volume of transactions every month? This article will discuss this in detail, so you can make plans for your business.

    Do Credit Cards Have Hidden Fees

    12 Credit Card Fees to Watch Out For

    Credit cards dont really have hidden fees, per se. Federal law requires issuers to clearly outline associated fees in card terms. But there are credit card fees that arent often discussed, and they may come as a surprise if youre not very familiar with how credit cards work . These can include:

    • Foreign transaction fees: Not all credit cards charge a foreign transaction fee, but many do. This is typically charged as a percentage of each transaction that involves a foreign currency.
    • Cash advance fees: The ability to withdraw cash with your credit card sounds convenient, but its actually a terrible idea. The money you withdraw is typically charged a fee right off the bat, and the withdrawal will incur interest charges at a high cash advance APR.
    • Paper statement fees: Depending on the bank, you may be charged a fee to receive paper statements if youd rather not receive them digitally.
    • Account activation fees: Theyre not common, but some credit cards charge an account activation or account opening fee.
    • Most issuers dont charge anything to increase your credit limit, but some do.
    • Expedited payment fee: If you have to get a payment in more quickly than usual, you might have to pay.
    • Card replacement fee: If you lose your credit card, the issuer will typically send you a new one quickly for free. But some issuers charge, and some may charge extra to send it quickly.

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    Dont Forget About Support

    Gary Jackson, formerly vice president of sales at online payment processing company CCBill and now a self-employed digital consultant, warns business owners against focusing only on price when choosing a merchant account provider.

    Business owners should also consider the type of support theyll receive if something goes wrong.

    You want someone who can provide you guidance, Jackson said. Some providers give you the software and say, Here you go. If you have a bad launch, it can be detrimental to your business. You can lose customers left and right. You might want a company that provides more hands-on support.

    Keep Your Chargeback Rate Low

    Your chargeback rate is the percentage of transactions disputed by customers for instance, because of unauthorized card use, billing errors or unresolved disputes about the quality of the items purchased. Chargeback fees can be costly, often $20 to $50 per dispute on top of refunding the complete transaction, and high rates of chargebacks can cause providers to increase your transaction fees.

    Minimize chargebacks by using contactless and chip card readers to reduce your liability in case of fraud, and by offering return policies, good customer service and quick responses to any customer complaints.

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    Which Credit Card Merchant Fees Are Best

    When it comes to a credit card merchant fees comparison, it depends on which model is right for your business right now.

    For example, if youre just getting started, and have a low number of credit card transactions, a flat rate fee may be ideal for you. With this model, you wont have to worry about a monthly payment, but know that you are generally paying more per transaction. As you start to receive more credit card payments you may want to reconsider this option.

    In general, if youre processing more than $5,000 to $8,000 per month in credit cards you probably wont want to use flat rate pricing anymore.

    If you value a predictable merchant statement each month tiered pricing will probably work best for you and easily allow you to forecast future expenses. On the other hand, if youre willing to deal with a more complicated statement that may be more difficult to forecast, the Interchange model may be able to save you some money.

    How much credit card companies charge merchants varies based on the target type of merchant they are trying to serve. Knowing your credit card sales volume and whats most important to you will help you choose the credit card processing option thats right for you.

    To learn more about credit card merchant fees and merchant accounts, click here for a complete A to Z guide.

    Visit to learn more or start your free trial today:

    Activate The Card And Verify Your Identity

    Small businesses want break on credit card transaction fees

    Once you receive the prepaid card at your mailing address, you will initially need to activate the card. This is to ensure that you, and only you, are in possession of the card. In most cases, you can either do this online or by calling the card provider directly. You will likely need to enter the full 16 digit card number alongside a unique PIN number that came with it in the post.

    On top of activating the card for security purposes, you will then be asked to verify your identity. Before we explain how this works, it is important to note that you are under no obligation to verify your identity. However, if you dont, your card will come with significant limitations. This will come in the form of reduced spending limits, and in some cases, the inability to withdraw cash from an ATM.

    As a result, it is well worth spending the required time verifying your identity. To do this, you will likely need to provide your full legal name, date of birth, and government-issued ID. Regarding the final point, this will either come in the form of your drivers license number or security social number. As soon as you complete the verification process, your prepaid cards spending limits will be removed.

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    What Influences Credit Card Transactions Fees And The Various Percentages Charged By Card Issuers

    Since many factors may influence the pricing models, its why transaction fees from various credit card issuers may be assessed at different percentages. For instance, American Express may charge between 2.5 percent to 3.5 percent because theyre a closed network meaning they are the only one that can issue credit cards. VISA® and Mastercard® can be issued by other banks.

    Keep in mind that there are many costs involved in credit card processing fees, which can affect the total cost of accepting credit cards over time. Anything you can do to reduce costs, for example, implementing accounts receivable automation software, may give you a better return on investment in the long run.

    How To Lower Your Credit Card Fees

    The way you process credit cards can affect your credit card fees. When a credit card transaction occurs, the interchange rate is determined by the type of card and how it was processed.

    However, certain frowned-upon processing practices can cause your transactions to be classified in a higher interchange bracket. The riskier a transaction seems, the higher its interchange rate. This is called a downgrade.

    Too many downgrades will raise your monthly processing bill. The problem is that many merchants dont know what downgrades are or how to avoid them.

    Here are four simple ways to avoid downgrades and lower your fees:

  • Preauthorize and capture for the same amount
  • If the preauthorization amount is different from the capture amount, the transaction may appear to be fraudulent. Make sure the amounts are the same to lower your risk and lower your interchange fees.

  • Batch out every day
  • Close your batch every day to avoid stale authorizations. Stale authorizations occur when too much time passes between authorization and settlement. In most cases, the time limit is 24 hours, so its best to batch out at the end of the night.

  • Use a PCI-compliant payment gateway
  • Integrate your payments
  • You can also lower your credit card fees by using integrated payments. Integration software allows you to link your accounting software, CRM system, or online shopping cart to an integrated payment provider, giving you the ability to process payments directly within your existing software.

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    States On Credit Card Surcharges

    While its legal under federal law to add a surcharge to credit card transactions, some states prohibit the practice. Some of these states had addressed this issue even before the 2013 law addressed it on a national level.

    As of Sept. 14, 2020, 10 states and Puerto Rico have laws prohibiting merchants from charging these fees. These states are California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma, and Texas. Minnesota prohibits merchants from imposing surcharges on credit cards they themselves issue to customers .

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