Put Effort To Accept The Cheapest Credit Card Types
The cost to you as a merchant is different depending on which credit card your customer is using. For example, the three most popular credit cards are Visa, MasterCard, and American Express. But these credit cards have different prices to you. In general, the order from cheapest to most expensive is MasterCard, then Visa, then American Express.;For a simple transaction, heres a baseline range for the different card brands:
- MasterCard: 1.3% to 1.86%
- American Express: 1.6% to 2.4%
If you can sway your customers to use MasterCard more, youll end up having cheaper payment processing. Now, each card brand also has different credit card types. Overall, corporate cards and rewards cards have higher fees. Basic cards have lower fees.;
Finding Your Effective Rate And Effective Markup
If youre already accepting credit card payments, before you can go looking for alternatives, you need to know your effective rate and effective markup. And even if you arent processing payments, knowing how to calculate these numbers;is the only way to make accurate comparisons between providers.
Your effective rate isnt the theoretical rate youre paying its the total percentage of your sales that go toward fees. And its easy to calculate: just divide your total monthly fees by the total sum of your monthly sales.
Lets say you do $20,000 in sales in one month. You pay $1,050 in total fees, leaving you a net gross of $18,950. The formula for calculating your effective rate looks like this:
- x 100
- = 0.0525
Check out this handy guide for more information.
Your effective markup is a tool specifically for comparing processors that offer interchange-plus or subscription plans. It is calculated much like the effective rate but it omits the interchange fees.
Lets assume your monthly sales total is $35,000. With one processor, you pay $1,580 in markup fees . The formula for;calculating your effective markup looks like this:
- x 100
- x 100
- x 100
This is the best way to make apples-to-apples comparisons for how much the credit card processors are charging you. However, it;wont work for comparing tiered or pay-as-you-go processors because they dont separate their markup from the interchange.
Your Right To Receive A Summary Of Multiple Service Provider Agreements
Multiple service provider agreements include contracts with different companies for various services, such as debit card processing, credit card processing and payment terminal leasing. Payment service providers must provide merchants with a consolidated summary of key information about each contract before entering into a multiple service provider agreement. ;
Specific information to be provided in this summary includes:
- the name and contact information for each payment service provider, and the nature of the services it provides
- the effective date of each agreement
- information on the expiry and renewal of each agreement . Check carefully to see if the agreement builds in any fee increases at renewal
- detailed information on applicable fees and rates for each payment service provider
- how statements will be provided
- cancellation terms of the agreement with each payment service provider, including any cancellation fees that could apply
- if services for point-of-sale terminals are offered, general information on buying, leasing or renting options for the hardware so that merchants can make informed decisions
- a complaint-handling process for each payment service provider, including contact information for complaints.
FCAC strongly recommends that this summary be presented in an information box, but this requirement can be met in other formats.
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What Is The Best Card Machine For Small Business
Unfortunately, theres no simple answer to this question. The best card machine for one business may be entirely wrong for another.
To help you narrow down the choice, Ive given you two questions you should ask yourself. These questions should help you eliminate some of the options that arent right for your business and set you on the path to the right purchase.
- Do you have a fixed location? Static terminals are physically connected to POS systems and are your cheapest options. Then youve got portable terminals which communicate with POS systems via Bluetooth or Wi-Fi. And if you need to process transactions on the move, youve got mobile POS units that work with apps on your phone or tablet.
- How regularly do you process payments? Most card machines come with long-term rental agreements covering several years. They also usually have a minimum monthly service charge as I mentioned above. If you have a regular stream of customers, these are usually fine. However, if your business has irregular trading patterns, its worth considering pay-as-you-go options like iZettle and SumUp.
Retailers And Consumers Ultimately Pay The Price
Khadija Khartit is a strategy, investment, and funding expert, and an educator of fintech and strategic finance in top universities. She has been an investor, entrepreneur, and advisor for more than 25 years. She is a FINRA Series 7, 63, and 66 license holder.
Credit card issuers are offering better and better rewards and sign-up bonuses,and consumers are taking advantage of the increasingly competitive market to earn points, miles, and cash back just for swiping. But have you ever wondered how card companies can afford to offer such great rewards? The answer is not as obvious as you might think.
Purchases on rewards cards reached a whopping 88% of spending on general-purpose credit cards in 2016, according to the Consumer Financial Protection Bureau.
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What Are Merchant Fees
If you accept payments by credit card , youll likely be subject to credit card merchant fees. Each credit card company sets a standard fee that the issuing bank charges when the card is used. These are typically a percentage of the sale and may also include a per-payment fee.;
In addition to these fees, the merchant services provider that processes your credit card payments also charges a small fee. Together, these form the credit card merchant fees youll pay when accepting credit card payments.;;;
So, how are merchant fees calculated? Different payment processing pricing models offer a variety of options for business owners.;;
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;PaySimple.com;to learn more or start your free trial today:
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Assessment Fees But The Percentage Changes By The Company With Regularity
The credit card company charges a base fee for all transactions processed with their cards. These fees vary depending on factors such as whether you process the card as a debit or credit transaction or based on the value of the transaction. Generally, Mastercard, Visa and Discover charge an average of .13 percent, but the percentage changes by the company with regularity.
The Cost Of Accepting Credit Card Payments
When your business processes credit card payments, there will be multiple fees taken out of the total transaction amount. The non-negotiable credit card network fees can vary:
- From 1.15% + $0.05 to 2.50% + $0.10 in interchange fees, although this could be as high as 3.30% + $0.10 if the client uses an American Express card.
- From 0.13% to 0.15% in assessment fees.
The most important factors in what your business pays will be its MCC and the type of credit card the customer uses.
Next, your payment processor will take its cut, unless you’ve chosen a processor that charges one flat rate to cover all the fees in the transaction.
With credit cards growing more and more popular, the typical merchant doesn’t have much of a choice but to pay these fees to the card issuer and payment processor. By knowing how much you’ll pay on each transaction, you can price your products appropriately and ensure you’re making enough money on each sale.
Some businesses also charge a credit card convenience fee to cover the cost of the processing fees above.
Here’s When Consumers Have To Pay Processing Fees:
There are some rare occasions when a credit card surcharge or a checkout fee will apply to a purchase on the consumer end, including small-dollar purchases and when a merchant doesnt usually accept credit. The minimum spending requirement to avoid credit card surcharges can be up to $10, legally. Debit cards are exempt from this rule. But merchants arent always good at telling credit cards and debit cards apart.
By law, merchants arent allowed to charge the customer more than the actual cost of processing the transaction or 4% of the purchase amount whichever is lower. Some states have even outlawed credit card surcharges altogether, including California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, Oklahoma, Texas, and Utah.
Still, the credit card transaction fees that merchants pay arent the only types of transaction fees you might encounter. There are also fees for specific types of credit card transactions that credit card users may have to pay, such as cash advance fees, balance transfer fees and foreign transaction fees.
Convenience fees are for doing a credit card transaction in a way thats not typical for the business .
A credit card surcharge is a fee just for using a credit card instead of another payment method.
10 U.S. states outlaw credit card surcharges: Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma and Texas.
Australia And New Zealand
In 2003, the Reserve Bank of Australia required that interchange fees be dramatically reduced, from about 0.95% of the transaction to approximately 0.5%. One notable result has been the reduced use of reward cards and increased use of debit cards. Australia also removed the “no surcharge” rule, a policy established by credit card networks like Visa and MasterCard to prevent merchants from charging a credit card usage fee to the cardholder. A surcharge would mitigate or even exceed the merchant discount paid by a merchant, but would also make the cardholder more reluctant to use the card as the method of payment. Australia has also made changes to the interchange rates on debit cards, and has considered abolishing interchange fees altogether. In February 2016 theCompetition and Consumer Amendment Act 2016became law.
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How Much Do Credit Card Companies Charge Per Transaction To Retailers
The question of how much a retailer must pay a credit card company per transaction is a complicated one. That’s because the credit card company, issuer and processor all get a chunk of the total per-transaction fee and each of those companies charges a different rate per transaction. Additionally, retailers pay different rates based on how the card is processed.
Other Credit Card Processing Fees & Costs
Merchant service providers also charge consumers monthly fees and minimums. The costs are vary widely from provider to provider. Below we highlight how different these merchants can get by breaking down the additional costs of Cayan and First Data.
|$99 per year||$0|
Price points should not be the only way of coparing MSPs. The above table is simply meant to illustrate that prices can vary between providers. There are more qualitative differences that may explain certain price points, and we recommend looking into what you will get with one provider versus another.
Another cost to consider is the price of equipment. If you want to process credit card payments in-person, your business will need at least one credit card reader. Merchants are presented with a wide set of choices in this department. Your personal needs and wants for the equipment will govern how much of a cost you will have to bear here. Some MSPs, such as Chase Paymentech, offer a free credit card reader. We recommend you do not base your decision of a payment processor based on this feature, as it will only provide you gains in the short term. Below is a sample of various card reading products and their prices. They vary in price, because they also vary in capability. You should know, ahead of time, if you want your card readers supporting EMV technology, or NFC payments.
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What Are Credit Card Merchant Fees The Different Types Explained
If youve decided to accept credit card payments for your business, youll quickly realize there are many merchant providers out there and they all charge differently.;Unlike other overhead expenses, such as rent or business supplies, credit card processing fees are more complicated to predict and understand. This is because the pricing models that determine credit card merchant fees vary among merchant service providers and can include hidden costs.
In this post well explain more about the different types of credit card merchant fees, the pros and cons of each, and help you determine which is best for you.;
How Much Are Credit Card Processing Fees For Consumers
Consumers usually don’t pay credit card processing fees. Some processors advertise surcharging programs that pass processing fees to your customers, but these programs aren’t popular with consumers, and it could be risky for you.
Before implementing such a program, you need to know your customers and determine if they would accept it or if it would lead them to shop elsewhere. As mentioned above, the credit card networks have rules for surcharging that you must follow.
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Average Credit Card Processing Fees: 13% To 35%
Note that debit cards have a different pricing model, and they usually cost less for merchants. This is why you may only see a convenience fee for a credit card and not a debit card purchase.
Here are the average credit card processing fees for the four payment networks :
|1.48% + $0.05 to 2.53% + $0.10|
|American Express||1.58% + $0.10 to 3.45% + $0.10|
Those ranges include the two types of fees that payment networks charge for each transaction: interchange fees and assessment fees. They don’t include payment processing fees, because fee structures vary considerably depending on the credit card processor you choose.
Now, let’s take a closer look at the fees that get taken out of every credit card transaction.
Restrict The Cards You Accept
Most retailers you walk into accept Visa and Mastercard. But you might have a harder time finding a business that accepts Discover or American Express. Thats because the latter two charge higher interchange feessince they offer greater rewards to their customers.
You could save money by declining to accept payments from networks that charge higher fees. But keep in mind that this could mean losing some potential customers who prefer those payment methods.
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Average Credit Card Assessment Fees: Around 014%
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.
Wholesale Merchant Fees Vs Markup Processing Fees
The terms wholesale and get thrown around a lot in the processing industry. It can be difficult to identify which credit card fees for merchants fall into which category. At its core, however, the distinction isnt too difficult to grasp. The two primary considerations are 1) which of the parties weve discussed ultimately collects the fee, and 2) how fixed the cost is across the industry. Heres all you really need to know:
Wholesale Fees VS Markup Fees
|Go to the issuing banks and the credit card associations||Go to your payment card processor, plus any other add-on equipment or software providers|
|Are fixed amounts regardless of which processor you use||Are different amounts from processor to processor|
|Are non-negotiable||Are negotiable|
As the merchant, youre the lucky one who ultimately must cover all these costs. Meanwhile, your credit card processor is right in the center of the fee-collecting and directing process. It chooses how to pay the necessary wholesale costs for running your account while also adding markups to cover its costs, paying other third-party service providers associated with your account, and turning a profit.
There is something else you should know about wholesale costs: They vary from industry to industry and from card association to card association. They also tend to differ by how the card is used whether its an in-person purchase or an online purchase. The reason for the difference has to do with risk.
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