Most Merchant Account Provider’s monthly billing statements are seemingly overloaded with a plethora of information. It's no wonder there’s more to your credit card processing fees than meets the eye. To get the best rates, you must first understand what exactly determines a credit card processing fee. Though some factors are simply out of your hands, if you implement best practices with what you can control, you’ll get the lowest rate possible.
How Credit Card Processing Fees Are Determined
Your rate depends on a combination of factors that include:
- Interchange (IC) - The wholesale cost to run a transaction. IC is determined by card brands (Visa, MasterCard, Discover, Amex), and paid by Merchant Account Providers, but passed onto their customers.
- Rate Plan - There are three typical rate plans that providers offer: Tiered, Flat or Interchange-Plus pricing. Interchange-Plus is typically the most cost-effective, while Tiered and Flat tend to be more expensive.
- Provider Markup - The cost for providing the support, product and service to accept payments. The markup is added to each transaction.
- Method of Transaction - How you run a transaction affects the cost. Swiping magnetic stripe cards and inserting chip cards are the cheapest methods. Keying in cards results in a higher transactional cost. As risk goes up, so does the cost. Keying-in cards is the most risky method of transaction.
- Card Type - There are many different types of cards on the market. Debit cards tend to be the cheapest since funds are transferred immediately. Business and rewards cards are the most expensive, while credit cards are average. The basic rule of thumb here is as rewards go up, so do costs.
- Fraud Exposure - If you lack certain security precautions for taking payments, you can subject yourself to downgrades, which means more expensive transactional costs.
Even though there are factors you can’t control, like card type and Interchange, there are components to your credit card processing fees you can influence. You just need the right knowledge to apply best payment practices.
How to Get the Best Rates
- Know Your Provider’s Markup - Take the time to understand the markup your provider is charging on top of Interchange. This is the fee you can negotiate, so there’s a competitive advantage in it for all providers. Be sure to weed out any unethical billing practices, as some providers will take advantage of their customers by hiding fees in the complexity of merchant statements.
- Understand Your Rate Plan - If you’re on a Flat or Tiered rate plan, there’s probably room for savings. Understand how your current plan breaks down and re-evaluate if it’s the best fit for your business. Depending on your business size and processing volume, you may want to consider changing your rate plan.
- Take Every Security Precaution - Use the highest security measures to minimize fraud exposure. Take the necessary steps to protect your business from downgrades and always run card types correctly to ensure the lowest processing rate.
Thinking you might need to re-evaluate your current payment practices? It’s not too late! Take the time to sit down and see where you can improve your average credit card processing fees. If you’re unsure, get a professional analysis of your statements to see where there’s room for savings.
Surprised by what determines your credit card processing fees? Do you see room for improvement in your payment practices? Share your thoughts below, we’d love to hear from you.