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Types Of Credit Card Processing Fees
Payment processors use one of these three pricing models to charge fees:
- Flat rate. Pay the same rate for every transaction, usually a percentage plus a small fee. This is usually the best model for small businesses that have low-priced tickets or process less than $5,000 per month.
- Interchange plus. Pay a flat fee per transaction plus a varying percentage of the transaction that matches the amount charged by the credit card company . This is a good model for businesses that process a lot in credit card transactions each month because they can negotiate the processors fee to save money.
- Tiered pricing. The processor bundles interchange fees and tiers pricing, so you pay a variable rate in three tiers, rather than different rates for each credit card. Experts generally advise against using a servicer with this model because pricing isnt transparent, so it can be costly and difficult to negotiate.
Average Credit Card Processing Fees For Flat
Lets assume youve made a bunch of sales of a $100 item at your brick-and-mortar shop and online. Heres how much you might pay in fees, based on typical processing fees .
|2.9% + 30 cents = $3.20||1.8% + 10 cents = $1.90|
*We used an average percentage based on typical rates for merchant accounts offering interchange-plus pricing for each type of card.
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Are Flat Rate Or Interchange
These are the two most popular pricing models. Wondering whether you should choose a flat rate or interchange plus provider?
Unfortunately, the answer is different for each business. It depends on your total monthly transactions as well as the individual transaction amount. That’s not all, though. You also have to figure in any monthly merchant service fee or other add-on fees merchant services provider charge.
In general, interchange plus works for most businesses. Flat fee pricing is usually better for low-volume businesses or those with smaller average ticket size.
Whats The Cheapest Way For Small Businesses To Accept Credit Card Payments
Which payment processor is the best deal for your company depends on the kind of business you run and how your customers pay.
Payment processing companies use various structures to charge you for the servicetransaction and subscription fees, flat-rate or variable feesdepending on the credit card network.
Top payment processors include:
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Special Rules For Surcharges At Gas Stations
Beginning July 2017, Michigan law requires gas stations whose advertised motor fuel price is subject to one or more conditions to post those conditions on road signs next to the advertised fuel price, with equal illumination, in lettering of the same style and of at least ½ the size used to post the sale price.
What Are Interchange Fees
When a customer pays with a debit or credit card, the bank that issued the card gets a cut of the transaction. This is called the interchange fee . It’s meant to cover the banks’ operation costs and risk of fraud.
Interchange fees make up the bulk of your total . There are different rates for different types of cards and transaction categories.
These fees are set by the credit card networks . Each card association has its own schedule of interchange fees, which you’ll find below.
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What Is Flat Rate Pricing
A flat rate pricing model is when your business is charged a flat rate for every transaction. For example, you could be charged 2.75-2.9% per credit card you swipe. You may also be charged an additional small fee of 30 cents per credit card you swipe.
The benefits of this type of plan is that it is easy to decipher your effective rate. Further, if you are only processing a handful of small credit card transactions a month this option may be best for you.
However, if you are processing more than $5,000 to $8,000 per month in credit card payments, you might actually be paying more than if you had a tiered rate plan with a dedicated merchant account. For instance, if we use the 2.9% plus 30 cents per swipe applied to $100,000 in annual credit card volume with an average transaction of $5, the flat rate fee could be $8,900 per year making your effective rate 8.9%.
$100,000x.029 = $2,900 owed from annual credit card revenue
$100,000/$5 = 20,000 average transactions
20,000x.30 = $6,000 owed in fees per credit card swipes
$2,900+$6,000 = $8,900 total owed
Why Businesses Should Avoid Tiered Pricing Models
The fees merchants pay in a tiered pricing model can vary wildly depending on the type of card your customer uses. This can result in paying higher fees than you would under a different model. For this reason, we recommend businesses stay away from tiered pricing models and instead choose a flat-rate, interchange-plus, or membership model merchant service account.
The Federal Trade Commission cautions small business owners, Scammers know that small businesses are looking for ways to reduce costs. Some deceptively promise lower rates for processing credit card transactions. Merchant service providers offering tiered pricing models will typically advertise Rates as low as X%. The advertised rate will be the qualified tier, which may not be the price you actually pay on most transactions.
See our recommended merchant service providers for a selection of processors that offer flat-rate, interchange-plus, and membership model pricing.
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Transaction Fees On Premium Credit Cards The Worst
All credit cards are more expensive payment methods for merchants than other forms of payment such as debit cards and cash. But the higher fee rates associated with premium credit cards hurt Canadian small businesses especially badly – credit card companies charge merchants even higher fees when customers use premium credit cards than when they use ‘regular’ ones.
The Canadian Federation of Independent Business has put together a that lists many of the specific types of credit cards available in Canada. Looking at the list you’ll see, for example, that the transaction fee charged a merchant when a customer uses a regular MasterCard is 1.75 percent, but if a customer uses a MasterCard Premium High Spend card, the transaction fee is 2.71 percent. Some MasterCards in the World/World Elite category carry even higher transaction fees.
To a small business that processed $100,000 worth of credit card transactions each month, the .96 percentage difference charged for premium card transactions would cost an additional $960 a month, an extra $11,520 per year. I’ve used MasterCard rates as an example but I could have just as easily picked Visa Visa transaction rates follow the same model of premium cards being used to extract higher transaction fees from merchants.
What Parties Are Involved In Credit Card Processing
When your customers swipe their credit card or insert it into the chip reader, a lot goes on behind the scenes. It’s not just a transaction between your store and the credit card company. There are many parties at work, including:
- Card issuer: This is the credit card company – the one that provides the credit card to consumers, such as Chase or Bank of America .
The banks work with Visa and Mastercard to process the transactions. The interchange fee goes to these banks and credit card companies to cover their operations and risk.
The issuer’s bank approves or denies the request and the result is sent back to the merchant. This all happens in the matter of a few seconds .
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What Is The Best Way To Accept Credit Card Payments For Small Businesses
The most affordable way to accept credit card payments for your business depends on factors including what you sell, where you sell it, how much you sell and which payment methods your customers prefer. Flat-rate processors are best for businesses that make less than $5,000 in sales per month, while interchange plus models are best for higher-volume businesses.
Can You Avoid Paying Interchange Fees
If you are accepting credit card payments, then you must pay interchange fees.
But there is one way to offset your processing fees. That is to pass them onto your customers by adding a . This is an additional fee added to the customer’s purchase for using a credit card instead of cash or debit.
There are some strict rules for surcharging. The surcharge cannot exceed the cost of the processing fee or 4% of the transaction, whichever is lower. It also must be clearly communicated to the customer . Read more for further details here.
With interchange fees taking so much of your profits, it’s understandable to want to avoid it. But really think about whether surcharging will be good for your business. It could turn off customers and drive them to competitors instead.
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What Are Credit Card Processing Fees & Can I Reduce Them
If you take card payments in the UK there are a number of fees you may be liable to pay including transaction fees, interchange or discount rates, authorisation fees, minimum monthly service charges and monthly terminal hire fees.
Until recently, UK companies were able to pass on credit card processing fees to their customers. But, in January 2018, this practice was banned and it is now against the law for any business in the UK to off-set processing fees through check-out surcharges.
So what can you do to limit the cost of taking credit card payments?
In this guide, well touch on everything there is to know about credit card processing fees in the UK: what your options are for processing credit card payments, and what to watch out for when choosing a payment services provider.
Cheapest Credit Card Processing Companies For Small Businesses
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Whether youve just decided to start taking credit cards or youve been doing so for a while and feel like its too expensive, you might be wondering: What’s the cheapest credit card processing company?
Unfortunately, with all of the complexities of credit card processing and merchant services, there is no simple answer to this question. With merchant account providers vs. payment service providers to consider, as well as a variety of processing rates, terminal options and additional fees, it may take you time to sort through your options and eventually decide on the processor and solution thats right for you.
The best way to streamline your search process is to decide ahead of time what youre looking for in a credit card processor and what specific capabilities or tools you need. Do you need a dedicated merchant account? Will you be accepting payments in-person, online, or both? You can narrow down your choices based on these requirements and then go about determining which provider, on the whole, will offer the cheapest payment processing for your business.
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How Processors Handle Credit Card Interchange Fees
Since processors have to pay the credit card interchange fees and still charge for their services, theyve come up with numerous ways to pass those costs onto you. In discussing processing rate plans, note that processors often refer to the costs they have to pay as the wholesale rate. This is essentially the same thing as the interchange fee.
Processing rate plans generally follow one of two approaches in how they treat interchange fees. The pass-through approach, found in interchange-plus and membership pricing plans, separates the interchange and the markup. With one of these plans, youll always know exactly how much of a cut your processor is taking from a transaction, even if you dont know the interchange rate in advance. While your processing costs will vary quite a bit due to variations in the interchange rates, established businesses with a stable month-to-month processing volume will usually save money overall with this approach.
How Do The Fees Differ If The Card Is Not Presented In
Credit card processing fees can be higher for purchases made online or over the phone, and theres a good reason why. has made in-person purchases considerably more secure, but online purchases are most susceptible for fraud since a credit card chip cannot be used to create a unique token for each transaction, and since all you need is a credit card number and a security code to make an online purchase.
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American Express Interchange Fees
American Express has a more complex fee structure.
For the other three networks, it’s mostly the type of card and payment method that determines the interchange rate. But for Amex cards, it’s the transaction size and merchant category that determine the interchange rate.
A lot of people use Amex credit cards for dining and travel. So the interchange rates are highest for merchants in those industries.
If you would like to accept Amex cards at your business, you have two ways to do it:
- OptBlue program: This option is best for smaller merchants. OptBlue allows your processing provider to bundle AmEx interchange rates with the other cards you accept. It’s not standardized, so each provider could charge differently. Look for an interchange-plus provider that lists their Amex rates so you can compare.
Since there’s no standard Amex interchange rate for OptBlue, here are some sample rates from Payline Data. Payline is one of our top recommended providers as it’s transparent and offers great pricing.
|2.15% + 10¢|
What Is A Credit Card Processing Fee
Every time a customer makes a purchase with a credit card, businesses are required to pay fees to accept credit as payment. These fees can vary depending on the type of credit cards you accept, and they include several different layers of charges:
- Interchange fees: This fee, which can also be referred to as a swipe fee or a discount rate, is paid by businesses directly to the credit card issuer. This fee may be higher for online purchases to account for the increased risk of fraud when a credit card isnt present for a transaction. Also note that interchange fees can depend on the type of card, how much is being charged and the type of business being operated.
- Payment processor fees: Its also possible the payment processor will charge an additional fee to facilitate the payment. Payment processor fees can be broken down into smaller fees that take place over time and may include monthly or annual account fees, equipment rental fees, withdrawal fees, statement fees and others.
- Assessment fees: Assessment fees are paid to the credit card network for the purchase to take place. Note that assessment fees are paid based on total monthly sales instead of a per-transaction basis.
|1.43 percent to 2.4 percent|
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The Case Before The Competition Tribunal
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.