Is It Legal To Charge Customers A Credit Card Processing Fee
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When using your credit card, some merchants may charge surcharges or require minimum purchase requirements.
Using a credit card over debit cards and cash can often be advantageous. With responsible credit habits, you can work toward building your credit score and even earn credit card rewards, such as points, miles or cash back.
American Express Credit Card Processing Fees
American Express is considered the priciest in terms of credit card processing fees. Their high discount rates, which often reach 3.5%, are higher than that of competitors like MasterCard and Visa. While more expensive, up until recently Amex has kept its pricing model simple, meaning most merchants paid the same credit card processing fees.
American Expressâ processing structure is changing with the recent introduction of OptBlue. The details on OptBlue are scarce, but we do know through this new program Amex will be structured more like its competitors â differentiating more between transactions, merchant category codes, etc. Whether credit card processing fees for American Express will drop as a result of OptBlue remains to be seen.
One of the major sought after changes by merchants is the way in which Amex handles returns. While other card issuers will refund the business part of the cost of the credit card processing fees charged to the merchant, American Express did so only when after merchants agreed to paying higher processing fees per transaction. Many hope the new OptBlue program will make Amex a little bit more merchant-friendly in that regard. Once any new details are released, this guide will be changed to reflect them.
What Are Lloyds Cardnets Card Processing Fees
Arguably better suited for small businesses, particularly if you bank with them already, Lloyds has a slightly less overwhelming application process, and a more flexible 6 month minimum contract .
The credit card processing fees are more competitive for small business, too. Lloyds Bank Cardnet processes 1.1 billion transactions per year, and will charge from 1.25% for processing a debit or credit card payment.
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How Often Do Payment Networks Update Their Interchange Fees
Payment networks generally update their interchange fees on a yearly basis. This doesn’t mean they raise rates every year. As mentioned before, American Express lowered its credit card processing fees in 2018.
Visa and Mastercard have been planning to increase credit card fees for certain types of merchants. They’ve postponed this for two years in a row because of the COVID-19 pandemic. There were reports that both were considering an increase of 0.05% to 0.10% for online transactions. While that didn’t happen this year, it’s a significant change that we could see happen in 2022.
Although it may seem like the card networks benefit the most by raising fees, it’s actually the banks. Remember that interchange fees go to the bank that issues a credit card. The banks that partner with Visa and Mastercard to issue their credit cards are the ones that will collect those additional fees.
Average Credit Card Processing Fees And Costs In 2021
By: Lyle Daly | Updated April 13, 2021
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Visa and Mastercard just delivered some good news for U.S. merchants. For the second year in a row, the two largest payment networks have elected to delay an increase to their credit card processing fees.
Until their respective announcements, both payment networks planned to raise fees on certain types of transactions in April 2021. While the new fees haven’t been detailed, both payment networks were planning to charge more for online transactions.
Considering online spending has gone up significantly during the COVID-19 pandemic, that would have been a costly change for merchants and one that may have had businesses seething.
Most merchants need to accept credit card payments, which makes credit card processing fees like these a cost of doing business. For more on how much those costs can be, we’ve collected all the latest data.
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Terminology To Get You Talking About Credit Card Processing Fees
Here is some common terminology that you should have a grasp of before moving forward:
- A flat fee is a static cost that doesnt change with the cost of the purchase. Commonly for recouping computer network costs that include the hardware, software, and network connection.
- A percentage is a cost that varies depending on the cost of the purchase. This is often for the financing risk.
- A processing charge = flat fee + percentage.
At a high-level, the credit card processing fees encompassmerchant account fees, administrative fees, and incidental fees. Each has its own unique place within the payment processing cycle.
How Much Are Credit Card Fees For Merchants
The amount you can expect to pay in credit card fees for business varies depending on the specific card brand. According to Value Penguin, average credit card fees for merchants for each of the major brands is as follows, although its important to remember that these are estimates:
Mastercard: 1.55% – 2.6%
American Express: 2.5% – 3.5%
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Avoiding Credit Card Fees For Business
Reduce chargebacks If your business experiences a significant number of chargebacks, the bank may view you as a risk and increase processing fees. As a result, its important to minimize the number of chargebacks incurred by your business. There are many ways of doing this, including better communication with your customers and offering proof of delivery.
Asking for a credit card fee waiver Of course, you can also ask for a credit card fee waiver from the credit card network enforcing the fees. Whether or not youre likely to receive a credit card fee waiver is another matter, but if youre a major customer, they may be amenable to discussing potential options with you.
Set a minimum amount for card sales Another potential option is introducing a minimum spend amount for customers making card purchases. If you do choose to explore this route, you need to consider whether the cost of credit card fees is worth the potential losses from business that youre turning away.
Opting for Direct Debit Finally, it may be a good idea to offer an entirely different payment method: Direct Debit. With a Direct Debit payments service like GoCardless, you can take payment from your customers automatically and on a recurring basis, allowing you to avoid credit card fees for merchants altogether.
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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What Are The Different Pricing Charges And Merchant Fees
Offering credit card payments means that your business will need to choose a merchant to provide the card machine, which you can either buy or rent, processing fees and other costs. The list can look long and confusing, but when you know what to look for, understanding the charges and fees is easier.
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.
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Why Is It Difficult To Compare Uk Merchant Accounts
There are both good and bad reasons for this. The bad is that transparency is often not good for business. How do you know if youre getting a good deal, when youre not sure how much you would have been charged with someone else?
However, this is not the only reason why UK merchant account providers dont advertise their fees. The fact is that different businesses and business owners carry different levels of risk. If you have no credit or bad credit you may be charged a premium.
Similarly, if youre business is considered risky you may also be charged a higher rate that corresponds to the higher risk of chargebacks. While this may seem unfair, card processing companies spend a lot of time and money assessing risks and if you want to accept cards, you have to play by their rules.
Payment Service Provider Credit Card Processing Fees
As we mentioned, payment service providers are trying to simplify business credit card fees. You donât have to purchase expensive merchant processing hardware to use a PSP, and you donât have to sign a long-term contract or worry about hidden fees. Youâll pay the same flat-rate fee on every transaction of the same type.
PSPs charge a different fee for card-present payments, card-not-present payments, and online payments. For example, youâll pay a lower fee when you accept a credit card at your retail shop. Youâll pay a higher fee if a customer wants to shop online on your website, or if youâre using information from a card thatâs stored on file. Additionally, payment service providers generally provide greater business protection from chargebacks in comparison to merchant processors.
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States That Prohibit Credit Card Surcharges And Convenience Fees
Ten states prohibit credit card surcharges and convenience fees: California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma and Texas. It is illegal for merchants to add any surcharges to credit card transactions or charge convenience fees to nontraditional payment methods in these states.
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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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.
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.
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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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The Basics Of Credit Card Fees
Ellen Cunningham, marketing and content manager at Tech180 and former manager at CardFellow, a site that provides advice and resources to businesses on credit card processing issues, said most small-business owners struggle to understand just how much their merchant account fees will cost them each month.
Thats because the pricing plans that these companies offer can be confusing, Cunningham said.
They offer pricing models that can be very complicated, she said. This is especially true if youre a small business that doesnt have an accounting staff to really look into these fees.
What if you as a business owner dont have the time to fully research credit card processing fees? It might make sense to take a closer look at what is known as your merchant discount, the final rate that youll pay to accept credit transactions.
Unfortunately, the merchant discount is made up of main parts, your base costs and markups. And both of these fees are made up different parts, too.
If Businesses Introduce Other Fees
The ban does not prevent a business from setting its own prices for the goods or services it sells.
A business will usually determine its prices at a level where it covers all its costs, and includes a profit margin.
If a business includes in its prices what it calls a service fee or a handling fee the ban will apply if those fees are payable on some payment methods but not others . A business is not able to by-pass the new ban by introducing what is in effect a payment surcharge but calling it something else.
If the fees are not described as a payment surcharge, or something similar, and are payable by the customer regardless of the payment method, then they are unlikely to be a payment surcharge and the ban is unlikely to apply. However, fees of any sort which are payable regardless of the payment method need to be included in the advertised total price, so the consumer is aware upfront what the total cost will be. If these fees are added to the advertised price later on, the business may not be complying with its existing obligations under the Australian Consumer Law.
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