Running any size business can come with significant costs – equipment, labor, rent, etc. These costs can add up quickly and can often be hard to control. One such cost that is actually more in your control than you may realize are the fees associated with accepting and processing credit cards for payment. Credit card processing is a competitive business and can also be a confusing process for a merchant, or owner, to decipher. There are ways to lower the fees you pay as the merchant and ensure that you are getting the best possible pricing for every transaction. In this post, we will share with you the secrets of credit card processing and discuss how the seemingly confusing industry works. Read on to learn important terms and ensure that you are prepared to negotiate the best possible credit card processing contract for your business.
What are Interchange Fees?
In order to understand how to lower your credit card processing costs, you need to understand the fees associated with each transaction. When you accept a credit card for payment there are many parties involved in processing that card so that you can get paid for your services. Each of these entities charges a fee to take part in the transaction. One such fee is the Interchange. There are over 300 interchanges set and are determined by the Issuing Banks for each card. Depending on the type of card your customer chooses to use at your business, you will pay a different Interchange Fee. Here is an example to help explain these fees. “Imagine a consumer making a $100 purchase with a credit card. For that $100 item, the retailer would get approximately $98. The remaining $2, known as the merchant discount and fees, gets divided up. About $1.75 would go to the card issuing bank (defined as interchange), $0.18 would go to Visa or MasterCard association (defined as assessments), and the remaining $0.07 would go to the retailer’s merchant account provider. If a credit card displays a Visa logo, Visa will get the $0.18, likewise with MasterCard. Visa’s and MasterCard’s assessments are fixed at 0.1100% of the transaction value, with MasterCard’s assessment increased to 0.1300% of the transaction value for consumer and business credit volume on transactions of $1,000 or greater. On average the interchange rates in the US are 179 basis points (1.79%, 1 basis point is 1/100th of a percentage) and vary widely across countries.” (http://en.wikipedia.org/wiki/Interchange_fee) These types of percentages are not always what is charged to you, the merchant, however. Most Merchant Processors charge their customers (the business) a flat rate, regardless of whether the card is present at the time of purchase or if it is a debit card being used, maybe that flat fee is around 2.5%. Where you, the owner, lose money is by paying these flat rates, instead of the lesser Interchange Fee + basis points that is available.
How does the Credit Card Processor Make Money?
The credit card processor that is handling your charges and uploading those to your Merchant Bank stands to profit off of the difference left over from transactions that are charged at the set rates you have agreed to in your contract. Processing services make their money from scenarios such as when customers use lower rate cards at your business or when you process a transaction without a physical credit card present for swipe. It is in their best interest to lock you into pricing that will ensure they end up with the largest possible percentage leftover for them to make their profit from each credit card swipe.
How can I avoid Paying Higher than Necessary Fees?
As with setting up any vendor contract for your business, you should take time to carefully review the fees and policies of the credit card processing company with which you are deciding to do business. Every business owner deserves to pay the best possible rates to handle credit card transactions. If you are new business or processing credit cards for the first time, you will need to pay two flat fees (a card present and card not present rate which are generally a little higher, this is because as a new business you are higher risk) on each charge. If you are a larger, more established business you are eligible to pay based an Interchange plus basis Points plan. Finding a credit card processing company that offers you the best possible rates or points is the key to lowering your costs.
Where can I find a Credit Card Processing Company with these Lower Rates?
HTML Global® can assist you with finding the right processor for your needs. We can look at your card present/not present rates, your points plan offered and other factors to help you save money and avoid paying higher fees on every credit card transaction. Please click HERE to fill out our Credit Card Processing contact form and we’ll contact you to get your project going right away. The world of credit card processing is a confusing path to navigate, but we will work with you to understand every part of the process and set you up with the best available credit card processing option for your business.