If you’re a small business owner who sells any type of product or service, you most likely take credit card payments. Or perhaps your business is growing to the point where you realize you’ll need to start taking credit card payments soon. In either case, it’s important to understand how credit card processing fees work.
It’s normal for credit card processors to charge fees for each transaction they process. These fees are typically split between the card processing provider, the issuing bank, and the credit card company. While there’s no way to completely avoid processing fees (unless you stop taking credit card payments), you may be able to control how much you pay. Here’s what to know about processing fees and how to choose the right processor so you can keep more of your revenue.
Why It’s Important for Small Businesses to Accept Credit Card Payments
If you want your small business to grow and be successful, you should seriously consider accepting credit card payments. Many customers prefer to pay for goods and services using credit cards instead of cash or checks. If you don’t take credit card payments, you could miss out on sales and revenue. Here are some of the top reasons small businesses should consider accepting credit card payments:
- Greater credibility: Businesses that take credit card payments are often viewed as more credible and secure than businesses that don’t. If you don’t allow customers to pay by credit card, you may inadvertently give the impression that you’re an amateur business.
- Expanded audience: Businesses that offer credit card payment options typically have access to an extended audience of potential buyers. This is because most major credit cards are accepted globally.
- Greater sales volume: Whether you sell your goods and services online or in person, payment versatility is a must. You can potentially boost your sales by accepting multiple payment options, including quick and convenient credit card payments.
Many business owners find that the benefits of using a credit card processor outweigh the initial and ongoing costs. If you’d like to start accepting credit card payments, you’ll want to find a small business credit card processing company you can trust to offer secure, reliable services for a reasonable rate.
What Are Credit Card Processing Fees?
Before you start accepting credit card payments, you should be aware that credit card processors charge various fees. Once you’re aware of these fees and what they’re for, you’ll know what to expect and how to budget for them. No two credit card processors are identical, so it’s natural for processing fees and services to vary.
Before selecting the credit card processor you want to use, it’s wise to compare services and rates. That way, you can make sure you’re getting the best service for your buck.
Key Components of Processing Fees
Credit card processing fees apply to every credit card transaction your business accepts. Most credit card processing fees are broken up into these three smaller fees:
- Interchange Fees: These are non-negotiable, set fees that compensate the issuing bank for handling the risks and costs associated with credit card payments. They are also sometimes called “swipe fees” and typically range anywhere between 0.5% to 3% of the transaction cost, plus a small fixed fee per transaction. Corporate or rewards cards typically have higher interchange fees than standard cards.
- Association Fees: These non-negotiable fees are charged for using the networks of card networks like Discover, Visa, and MasterCard. They may appear as a general “assessment” fee and help cover the cost of authorizing and clearing or settling credit card transactions. They also help cover network maintenance costs and typically range between 0.13% to 0.165% of the transaction cost.
- Processor Markup Fees: Processor markup fees are negotiable fees charged by credit card processors. The markups help cover equipment, service, and offer a profit for the processing company. They typically range from 0.10% to 0.5% per transaction, plus a small fixed fee per transaction.
Together, these individual fees are simply referred to as “credit card processing fees.” Processing fees aren’t the only factor to keep in mind when choosing a preferred payment processor. However, knowing how different provider rates compare can be helpful when you’re trying to get the best service for your money.
How to Get Reasonable Credit Card Processing Fees
The only way to completely avoid credit card processing fees is to refuse credit card payments. This might seem like a great way to save money, but it could actually cost you revenue in the form of lost business.
If you’re looking for ways to save money on your credit card processing fees, here are a few things you can do:
- Get quotes from multiple providers before committing to one. Make sure you’re comparing rates for similar services and features. It’s not always wise to go for the cheapest provider, especially if another provider can offer better value for your money.
- Save time and money by bundling your point of sale and payment processing systems together.
- Avoid chargebacks whenever possible. Credit card chargebacks are federally regulated by Regulation Z. They occur when a customer disputes a credit card transaction. In some cases, chargebacks occur due to an incorrectly billed amount. Credit card processors typically charge a hefty chargeback fee to refund the payment to the customer. Therefore, you can cut back on unnecessary processing fees by making sure you charge customers correctly.
Keep More of Your Revenue With Scalable Credit Card Processing
Taking credit card payments can be a game-changer for your small business. It can help you attract more business by giving customers the payment flexibility they’ve come to expect. Keep more of your hard-earned revenue by choosing a credit card processor that offers scalable processing services with transparent, reasonable pricing.