Partnering with a credit card processing company and payment services provider is a great option for growing your business and increasing revenues. However, when business owners first start thinking about accepting non-cash payments, the first question that comes to mind is, “how much does it cost to process credit cards?”
What are the advatanges and disadvantages of accepting credit cards for your small business? While some people are wary of using credit card processing for payments, very few scalable businesses will survive without accepting them.
If you’re interested in partnering with a credit card processing company, acquiring bank, or payments services provider, this article will provide everything you need to know about how they work, how much they cost, what benefits they offer, and more.
What is Credit Card Processing?
Credit card processing is the daily act of receiving credit card payments, processing them, and then having those funds deposited into a bank account associated with the merchant (the person or business accepting the payment).
Credit card processing is a service that many businesses use to add ease to their customer’s buying experience and allow them to pay with a credit or debit card.
It doesn’t matter what business you are in; you will probably have customers attempting to pay with their credit cards.
Statistics show that people pay for goods and services using their credit cards more often than cash or debit card.
Types of Credit Card Processors
There are two main types of credit card processors. They include:
- Traditional Credit Card Processing – Traditional credit card processors are mostly used for the more traditional type of business types you might be familiar with. These companies collect your payments, process them, and then send you a statement of the amount you’ll receive and when. If you work with a traditional payment processor, you will receive your own dedicated MID or merchant account number.
- Payment Facilitators – Payment Facilitators, also known as PAYFAC, are a newer type of credit card processor that is becoming more and more popular. With a Payment Facilitator, merchants technically do not have their own merchant account.
With this model, the payment facilitator or PAYFAC is the actual merchant of record. The business is called a sub-merchant. The PAYFAC or merchant of record collects the funds on behalf of the sub-merchant and deposits the funds into the merchant’s bank account.
How Does Credit Card Processing Work?
In a perfect world, this is how credit card processing services work. You apply, get approved, and start processing with a service that will help you accept credit card transactions. This company will take care of everything, from receiving payments to depositing money in your account, and even providing you with the necessary equipment to accept payments.
After you sign up with a processing service, your customers can simply pay with their credit card as they normally would, and the payment will be instantly sent to your payment processor. The processor will then transfer their funds to your bank account.
Credit card processing fees are a cost that a business pays to process credit cards. This fee is typically a percentage of the transaction amount and is paid by the business to the credit card processor.
Credit card processing fees can be either fixed or variable per transaction, sometimes with additional fees outside of the transaction fees.
Credit cards have become the main form of payment for many businesses, with well over 60% of small business owners accepting credit card payments.
How Much do Credit Card Companies Charge for Credit Card Processing?
One of the most common questions related to credit card processors concerns the fees and commissions they charge. How much does it cost to process credit cards?
Unfortunately, this is not that easy to answer as the cost of processing credit card transactions will vary due to many factors. Some of these include the business type, volume processed and the service provider chosen. We will cover this in more detail later in this article.
When considering fees, there are a few things you should keep in mind:
First, pay attention to the details of the contract you signed with the processor. You should be able to clearly see what the terms of service are and what the rates are for each service you are receiving. Make 100% sure you understand the cost of processing credit card transactions based on the agreement you are signing.
Secondly, make sure the processor you select provides value for the fees charged (such as fraud protection, tokenization, free equipment, etc).
Lastly, make sure the processor has a good reputation and is experienced in the industry.
Do All Credit Cards Have Processing Fees?
Credit card processing fees are unavoidable. There are two types of fees: interchange rates and merchant fees.
Interchange fees are fixed fees that are charged by the card network (American Express, Mastercard, Visa, or Discover) to process transactions. These fees can vary depending on the card network and credit card type.
Merchant fees are flat fees that are paid by the merchant each time a transaction is processed through a credit or debit card. These fees depend on many things and some of the most important include, business type, the risks associated with accepting the payment, the size of the transaction, and the actual dollar volume processed per month.
How Much Does Visa Charge Merchants Per Transaction?
Visa, one of the largest credit card processors in the United States, charges merchants a fee to process each transaction.
The fee depends on the type of payment method used and is typically between 1.5 and 2.5 percent of the total transaction amount. Visa also collects additional service fees from merchants for each authorized transaction.
There are several ways that Visa may charge merchants for processing transactions:
Visa may charge a flat rate per transaction (fee per transaction) or a variable rate (fee based on the current market rate).
Additionally, Visa may charge a percentage of the transaction amount (fee percentage) or another fixed fee (fixed fee).
Occasionally, Visa may also charge extra fees if transactions are international. The currency conversion fee varies from 2% to 3% and is based on the exchange rate at the time of the transaction.
Why is Credit Card Processing So Expensive?
Credit card processing fees are inflated because of the complex infrastructure that credit card companies have built to process and verify transactions.
To verify a transaction, credit card companies must go through various steps to authenticate the cardholder’s identity. This includes looking at existing account data, verifying the source of funds, and conducting several automated processes.
These acquiring banks and payment processing companies must cover their costs for facilitating these transactions. Hard to approve businesses due to various risk factors, will pay the highest rates and fees to accept credit card payments. These fees can occasionally be as high as 10 percent of the purchase amount for high-risk accounts, plus a transaction fee of anywhere between $0.05-$1 per transaction.
Three Main Things to Consider When Asking the Question, “How Much Does it Cost to Process Credit Cards?”
- Type of Business
- Risk Involved
- Volume Processed
Some additional questions you might want to ask yourself when thinking about pricing in general are:
Is your business model simple or complex?
A simple transaction involves a one-time sale of an item like a book. A complex transaction involves things like renting an office space, subscription payments, tokenization, and recurring billing.
Where is your business located?
The cost of credit card processing depends on where you are located because credit card companies have different rates and fees in different regions.
What exactly are your most important business needs?
The best way to keep costs down when processing credit cards is to use one of the companies that offer competitive pricing. However, never sacrifice important features like reliability and fraud protections to save a small percentage in fees.
What is a Good Rate for Credit Card Processing?
The best way to gauge if you’re getting a good rate is to compare the fees of your current provider with the fees of your potential competitors.
The amount paid per transaction will always vary depending on how many transactions you process in a given month, your business type, and the risks associated with accepting payments. However, a good target range is between 2 and 4 percent or 200 to 400 basis points for most low-risk business types.
Before signing up with a new provider, make sure you take into account any additional fees for using specific types of credit cards, such as American Express vs Visa.
Remember that financial service providers are also businesses, and they need to make money to stay in business.
What is the Typical Cost of Processing Credit Card Transactions?
The cost of processing credit card transactions can depend on a few different factors like the type of payment processor you select (Retail or Online for eCommerce payment processing merchants), the type of equipment you use, and your plan.
If you are going with a traditional processor, you should expect to pay between 1.75% and 3.5% per transaction.
If you select a payment facilitator, you will probably pay about 2.75% to 5%.
Accepting payments from customers in other countries may result in additional fees due to currency conversion rates.
Summary of Credit Card Processing Fees
Card fees will vary, depending on the risk of purchase and transaction style. For example, fees for online purchases will normally be higher than for in-person credit card purchases where customer identities are verified from person to person.
The average interchange fee is different under each card provider’s agreement but generally is in the 1.5-4% range. These are direct fees and additional fees may be added by payment processors to provide other services such as fraud protection, chargeback protection (against chargebacks and chargeback fees), and high-risk merchant accounts.
Merchants can expect to pay 3% or higher for online transactions and at the lowest end as little as 1.5% for in-person transactions (depending on the network used).
Major card networks use these fees (at the time of writing):
- American Express is 2.3% to 3.5%
- Discover is 1.55% to 2.5%
- Mastercard is 1.5% to 2.6%
- Visa is 1.4% to 2.5%
In addition to these percentages, there is often a $0.05 to $0.30 per transaction charge.
Other smaller fees can also be applied to these transactions, such as assessment fees (normally 0.13-0.15%), network access and brand usage fee (under Mastercard), and fixed acquirer network fees. These are normally quite small and the above interchange fees are the main charges, excluding any added by service providers, such as account fees.
Who Pays for the Credit Card Processing Fee?
The credit card processing fee is paid by the merchant. The fee is charged by the payment processor and card brands (e.g., Visa or Mastercard).
While technically the merchant pays the fees, in many states merchants can choose to pass some or all of the processing costs on to customers. This is called surcharging or cash discount.
When a merchant accepts credit cards, they are responsible for covering the cost of processing credit card transactions. Merchant fees vary depending on the type of card used and the size of the transaction.
Credit card processing fees are not included in the original purchase price of a product or service. In other words, this fee is added on top of the total cost of the item or service that you are buying.
The merchant account provider may also have additional fees, such as set-up fees, monthly service fees, and merchant discount rates. Merchants should always verify the total cost of accepting credit cards before they begin accepting them.
What to Consider When Choosing a Payment Service Provider?
Now that you know what credit card processing is and how it works, you might be wondering how you can find the right processor for your business.
First, you’ll want to consider your budget and which features you think you might need.
While any credit card processor will help you accept payments, you may want to make sure you select a reliable company.
Think about the payment terms you’ll receive and the amount of money you expect to process. You don’t want to select a processor that can’t handle the number of transactions you expect to process.
What is a Good Rate for Merchant Services?
A good rate for merchant services is subjective and depends on many things. Make sure you are competitively priced for what you receive and comfortable with the payment provider.
If you are comparing a 4% credit card processing fee to a 3% fee, it might seem like a relatively small difference but can add up in the long run. To make sure you’re getting a good rate, look at the overall cost of your transaction and any services or benefits you receive for the difference in price.
You should also consider any discounts or incentives you might receive by using a particular service provider.
As with most things in life, there are no perfect rates. But if you keep these questions in mind and don’t fall into the trap of paying too much for merchant services, you’ll be able to find the right fit for your business.
Final Words: Is Credit Card Processing Right for Your Business?
You likely started by wondering, “How much does it cost to process credit cards?” and “Is it really worth the expense?”
Well, credit card processing can be a great way to accept payments from a growing number of customers and help to expand your business. It’s easy, convenient, and secure.
Most importantly, it allows you to easily accept payment from anyone, anywhere and a lot of the fees are only payable when you are receiving payment. So, in this sense, you only pay more when you make more.
All you have to do is select a processor that fits your needs and sign the contract to get started. From there, you’ll be able to accept payments and manage everything through your payment processor’s website.
How Much Does it Cost to Process Credit Card Transactions?
When asking the question “how much does credit card processing cost?”, always include the total fee structure and not only the percentage charged for credit card brand fees and credit card network fees.
Credit card processing fees are charged by the acquiring bank and payment service provider. This is over and above interchange, dues and assessments charged by the associations. Fees vary from one payment processor to another. However, most include a flat-rate transaction fee and a percentage of each transaction amount. Then there are other fees on top when using payment processors and merchant accounts.
How Much Do Credit Card Companies Charge Merchants 2022?
Processing credit card transactions can be an expensive process, especially when accepting very small transactions. It usually costs anywhere from $0.05 to $0.25 to process each transaction. This fee is incurred regardless of the amount of the transaction, as well as whether or not a merchant accepts credit cards at all.
In addition to this fee, merchants also incur a fee for each payment transaction that goes through their system. These fees vary depending on the type of credit card used, business type, and risks involved with accepting the payment. They are typically between 2% and 4% but can be much more when considering what merchants pay for high risk merchant account fees .
What is the Average Fee for Credit Card Processing?
The average fee for credit card processing is around 2.0 – 4% of the total transaction amount or 200 to 400 basis points. This fee will include both the credit card company’s processing fee and your merchant account provider’s service fee.
When calculating your processing fee, you should consider the size of your business, the type of transaction (i.e. consumer- vs. business-to-business), and the number of transactions that you process each month.
The more transactions you accept, the lower your credit card processing fees will be per transaction. However, if you process a lot of small transactions each month, your overall processing fees could end up being higher because you will be paying more for each transaction.
You may also be eligible for discounts on merchant account fees based on the volume of transactions that you have processed in the past year or other criteria.
What is the 3% Processing Fee?
Credit cards are useful because they offer a convenient way to make purchases without having to carry large amounts of cash.
Credit cards often carry a 3% processing fee (approximately) and the fee can be even higher for online or high-risk transactions.
What is the Average Credit Card Processing Fee?
The average credit card processing fee is 3% of the total transaction value, especially for online payments. This fee is taken from the cardholder’s account at the time of purchase.
Understanding merchant account fees is of utmost importance. There are two main types of processing fees: flat fees and percentage-based fees.
Flat-fee processing fees are fixed amounts that are charged to a card every time someone makes a purchase, regardless of the amount.
Percentage-based fees are based on the amount of the transaction, and they’re typically lower than flat-fee rates.
Most credit cards have both flat fees and percentage-based processing fees, but some offer only one or the other. Transaction volume and risk may also affect these and whether or not they are available for a specific business.
What are the Average Credit Card Processing Costs?
There are many different costs associated with credit card processing, including transaction fees and interchange fees. These fees can add up quickly, so it’s important to do your research and find a credit card processor that fits your needs.
On average, credit card processing costs between 2% and 4% per transaction. Keep in mind that these costs will vary depending on the type of card, how much you process each month, and what type of setup you have for your business.
The average cost of credit card processing varies depending on the type of business you run and the types of cards accepted.
What is the Average Processing Fee for Credit Cards?
The average processing fee for credit cards is around 3%. This is one of the biggest costs associated with using a card, but it’s not always easy to predict what the fee will be.