Wednesday, February 1, 2023

How Much Are Credit Card Swipe Fees

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Merchant Account Fee Downgrade

Investigating credit card swipe fees

One of the major factors that determine the fee amount you are charged is whether the credit card was swiped or keyed in. Transactions processed through a swipe have less risk associated with them than those keyed-in. As a result, the fees are lower on a swiped transaction. This is called a downgrade.

A downgrade can occur when a transaction does not qualify because:

  • The transaction was keyed in instead of swiped
  • The transaction was not submitted for clearing within 1 or 2 days
  • The type of card used for the purchase
  • The type of card that your customer uses is also a factor. More exclusive credit cards with robust rewards or business cards will have higher fees associated with them.

Additionally, if yourbusiness is considered to be high risk for any reason, your credit card transaction rates could increase. This can happen for a number of reasons but typically goes back to the processor who deems your business to be risky.

Visa Mastercard Under Fire For Raising Charges To Merchants

Democrats search for culprits and profiteers amid decades-high inflation turned to the credit card industry Wednesday with a hearing on transaction fees charged to merchants.

In response to soaring inflation, Democrats have accused companies of raising prices disproportionately to increase profits amid demand and supply-chain bottlenecks. Visa Inc. and Mastercard Inc. came under fire at a Senate Judiciary Committee hearing for raising the transaction fees charged to merchants accepting their credit cards.

Senate Judiciary Chairman and Majority Whip Richard J. Durbin, D-Ill., said the interchange fees face too little competitive pressure and that increases are hitting consumers and businesses when they can least afford it.

We’re facing inflation. And the last thing the American people need is a higher swipe fee. I wish both companies had resisted the urge to make some money when they can, he told representatives from Visa and Mastercard. The Consumer Price Index showed an 8.5 percent annual inflation rate in March, the highest annual pace since 1981, according to the Bureau of Labor Statistics.

Merchants accepting credit card payments are required to pay a fee on each transaction. Credit card companies set the fee, but the proceeds are passed on to banks issuing cards as an incentive. Merchants paid $84.2 billion in swipe fees on Visa and Mastercard transactions in 2020, according to a Nilson Report study.

There Are Two Basic Debit Transaction Types

Well, technically, there are three: Signature Debit, PIN Debit, and card-not-present debit . But since you have no control over how the customer authorizes a card-not-present debit transaction, we will be focusing exclusively on Signature Debit and PIN Debit. First, lets define these terms:

  • Signature Debit transactions occur when a customer swipes a debit card through a credit card terminal and then signs a printed receipt or a digital signature capture device to verify the transaction. These transactions are most often initiated when a customer swipes his or her debit card through a terminal and then chooses to process the card as credit.
  • PIN Debit transactions occur when a customer swipes a debit card through a credit card terminal and then enters a Personal Identification Number on a keypad in order to verify the transaction. These transactions are commonly initiated when the customer chooses to run the swiped card as debit.

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Rccs Fight To Reduce Fees

RCC has long fought for lower credit card interchange rates, securing a victory in 2015 with a reduction of the average rate from 1.65% down to 1.50%. Further success has been achieved with a commitment from Visa and MasterCard to lower their average rates from 1.50% to 1.40% in 2020. Altogether, the reduction efforts achieved by RCC save merchants over $1 billion annually.

Worldwide, 37 countries have recognized the uncompetitive level of interchange fees and have moved to reduce and cap them. For example, France limits interchange to 0.28%, the EU is moved to a 0.30% cap across the board, Australia limits interchange to an average of 0.50%. Canada needs to follow suit.

Swipe Fees Are Falling For Small Businesses Or Are They

Dealing With The Hike In Credit Card Swipe Fees

A concession on interchange rates has done little to appease a merchant lobbying group that is hoping lawmakers will prevent Visa and Mastercard from changing their fees in April.

The card networks are planning to implement a long-delayed increase in certain swipe fees next month, but they agreed to cut rates on some transactions for small businesses and the travel and day care industries.

The Merchants Payments Coalition says the targeted cuts are small potatoes and wont help the vast majority of retailers coping with credit card interchange rates that are cutting into profits as inflation soars. Visa and Mastercard already postponed the long-planned interchange rate hikes by a year because of the pandemic.

A coalition of financial institutions and card networks defending the interchange increases now points to significantly higher fees merchants routinely pay as bounties to buy now/pay later fintechs as proof that interchange rates are reasonable.

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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.

Consumers Will Pay Those Processing Fees Critics Say

Only an extremely narrow segment of merchants with a small overall transaction volume might benefit from the new fee structure, critics say. The bulk of retailers will see increased costs, which will trickle down to consumers already struggling to make ends meet amid the highest inflation in 40 years.

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Merchants and American consumers are not fooled by such bait-and-switches, wrote Democratic senator Dick Durbin of Illinois in a letter to the heads of Visa and Mastercard last week asking them to call off fee hikes. The letter was also signed by Republican senator Roger Marshall of Kansas, and U.S. representatives Democrat Peter Welch of Vermont and Republican Beth Van Duyne of Texas. Your profits are already high enough and any further fee increase is simply taking advantage of vulnerable Americans.

Visa responded late Friday in a letter defending its rate tweaks. It noted more than 838,000 small U.S. businesses would benefit from a drop in fees and that monies from increases would go towards making card transactions more secure.

“As more commerce moved online during the pandemic, so did fraud,” it said.

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Are Businesses Required To Disclose A Credit Card Surcharge

Yes. Credit card surcharges must be disclosed before purchase. Most credit card companies require merchants to disclose credit card surcharges in online transactions, on a sign at the stores point of entry and point of sale, and on the receipt. Additionally, any undisclosed fees may constitute an unfair or deceptive trade practice prohibited by Florida law.

The Issue With Payment And Credit Card Fees In Canada

Are credit card ‘swipe fees’ legal?

Canadians pay some of the highest interchange in the world. Close to 1.5% of Canadian credit card spending goes directly to the big credit card companies and their issuing banks, therefore reducing retailers profit margins and driving up prices for Canadian consumers. Lowering these fees will make doing business in Canada more affordable and will save Canadians money on their everyday purchases.

It should come as no surprise that shopping online, which was already on the rise, dramatically spiked at the peak of the pandemic. Even as brick-and-mortar stores slowly reopen, online shopping and touchless payment is only expected to grow significantly from where it stood pre-pandemic. Consequently, this increase in credit card use has increased payment costs for retailers and consumers.

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Retailers Not On Board With Swipe Fee Changes

Retail trade groups are against the changes, though, and dont see them as benefiting retailers or consumers. According to a letter sent in mid-April by some Congressmen asking the card networks to halt their swipe fee increases, retailers paid $77.5 billion in Visa and Mastercard credit card processing fees for 2021.

Doug Kantor, executive committee member for the MPC, dismissed the idea that small retailers would benefit from the change in Visas fee schedule.

Visa is playing a public relations game to distract from its increases in fees, Kantor said. Only very tiny merchants would qualify for this small change, and Visa will only give the benefit to merchants that know about it and ask for it.

Kantor also sees Mastercards intention to decrease costs for some merchants hard-hit by the pandemic as a public relations stunt that will throw back a few crumbs to merchants who will see higher costs anyway.

Leon Buck, National Retail Federations vice president for government relations, sees the concessions the card networks refer to as a public relations exercise that will not really benefit merchants overall.

If there are any decreases, they will apply only under narrow circumstances and will have little effect on the overall amount collected, Buck said. Saving a few million dollars for a few thousand merchants is a drop in the bucket when there are millions of merchants collectively paying tens of billions of dollars in fees every year.

Debit Card Processing Fees Explained

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Battle Over Swipe Fees Is Nothing New

Credit card processing fees have long been contentious, with Walmart in and out of litigation during the last decade with Visa over high fees. Late last year, to stop accepting Visa credit cards issued in the UK due to high fees. The two companies ultimately struck a deal that prevented a shutdown of British Visa cards for Amazon purchases.

In the U.S., the battle continues with retailers arguing for decades that the fees set by Visa and Mastercard amount to price fixing. But the fight now takes on new urgency with consumers coping with higher prices of nearly everything.

Leon Buck, vice president at the National Retail Federation, estimates the average family spends on fees about $700 a year — an amount that will continue to climb with inflation since the fees are a percentage of their total spending bill.

These fees get factored into the cost of everything consumers buy, said Doug Kantor, general counsel at the National Association of Convenience Stores. This is bad for merchants, bad for consumers and bad for inflation.

What Is Rcc Doing Now To Help Reduce The Cost Of Payments

Are credit card

RCC is encouraging the Minister of Finance to:

  • Implement the budget commitment to help lower credit card acceptance fees and
  • Broaden the Code of Conduct to ensure mobile payments do not result in further cost increases to Canadian merchants and their consumers. In particular Code must dictate that online and mobile transactions are treated as a card present not higher cost card not present option which adds cost to merchant.

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Cap Credit Card Swipe Fees

Fees on debit card swipe fees are capped at 21 cents plus 0.05 percent of the transaction value , thanks to the Dodd-Frank legislations Durbin Amendment, and it seems some large retailers are asking for Congress to also put in caps on credit card transactions as well.

However, some smaller retailers and commentators hold that capping debit card swipe fees did not benefit consumers and are against caps to credit card swipe fees. According to by Dorothy Judy, mayor of Parsons, W. Va, big retailers benefited from the debit card caps but did not pass on the savings to consumers.

And smaller retailers saw their swipe fees, which were lower prior to the cap, go up as banks tried to make up for the losses caused by the cap. Those retailers, in turn, passed on the costs to consumers. Judy says a similar scenario would play out if credit card swipe fees are capped.

Banks will likely cut back on credit card rewards if their swipe fees are capped, much as debit card issuers did. And the cost of credit would go up too for consumers, especially hurting low-income and minority consumers.

However, Visa and Mastercard may not have the final say on their swipe fee raises. Congress is holding a hearing May 4 on card networks swipe fees and barriers to competition in the credit and debit card systems.

You Will Be Charged Interchange Fees For Signature And Pin Debit

As with credit transactions, the processing networkwhether its a credit network or an ATM networkcharges a basic amount per transaction known as interchange to process a payment. This baseline cost will vary depending on three factors: the size of the card-issuing bank , your business type, and the method of capture .

In addition to these basic fees, you will also pay your merchant account provider a Provider Markup just like you would with a credit card transaction. The Provider Markup you pay will vary if you are on a tiered pricing plan, but it will remain fixed and predictable if you are on an Interchange-plus pricing plan.

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What Are Credit Card Monthly Maintenance Fees

Finally, credit card monthly maintenance fees are similar to annual fees in that some card issuers charge them just for the privilege of using that particular credit card. Generally, youll encounter monthly maintenance fees on cards marketed toward individuals with bad credit.

Monthly maintenance fees vary, with some running as high as $15 a month. Unless your credit is very poor, you should be able to find a credit card that doesnt charge this type of fee.

Can Businesses Apply A Surcharge To Debit Card Transactions

Credit-card swipe fees increasing

Under federal regulations credit card issuers can only receive fees for debit card transactions of up to 21 cents, plus 0.05 percent multiplied by the value of the transaction, plus 1 cent for fraud prevention. As a result, most credit card companies prohibit merchants from surcharging debit card transactions.

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What Is A Transaction Fee On A Credit Card

Transaction fees are what the credit card company charges retailers, stores and merchants for the convenience of accepting credit as payment. You might also see these fees referred to as processing fees or swipe fees.

Generally, credit card transaction fees are rolled into the cost of products and services, so the average consumer usually doesnt know how much theyre paying for the transaction fee. Its a cost passed on to the consumer, so unless you ask a merchant directly, youre unlikely to know the exact rate.

This is also why you might come across stores that set a minimum purchase amount for credit card transactions. Because each swipe of a card costs the store money, smaller transactions may actually hurt the merchants bottom line.

Incidental Fees: Authorization Chargebacks & Termination

Incidental Fees are not common on merchant accounts and only occur if one of the following things happen.

  • Voice Authorization Fee A voice authorization occurs when a merchant calls into a Help Desk to authorize a transaction manually.
  • Voice AVS Fee Voice AVS means manually verifying the address of a cardholder against the card by calling the card into the processors help desk.
  • Electronic AVS Fee Electronic AVS is the program in a credit card terminal that will prompt and verify the cardholders address against the information linked to the card. This process is done automatically through the terminal.
  • Chargeback Fee This fee is charged when a merchant receives a chargeback on their merchant account.
  • Return Fee / Return ACH Fee A return fee is charged when the processor tries to collect payment from you and your bank account has insufficient funds.
  • Early Termination Fee An early termination fee is charged if a merchant closes their account or breaks the contract before the agreed-upon date.

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Lowering Your Swipe Fees

You cant eliminate swipe fees completely, but you can lower them. If youre looking to cut your credit card processing fees, get in touch with Payment Depot. Well review your statement and recommend ways to help you save.

As one of the top-rated credit card processors in the market, were able to save merchants $400+ a month in payment processing.

Average Credit Card Assessment Fees: Around 014%

Keep credit card swipe fees competitive

The assessment fee is the payment network’s cut, and it’s a much smaller portion of each transaction.

American Express is once again the most expensive payment network, but this time around, Discover has the lowest rate, at least for transactions under $1,000. For transactions of $1,000 and over, Mastercard is the clear winner. That being said, the differences in assessment fees between each payment network are minuscule.

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