Most businesses and services nowadays accept credit cards, but did you know that every time you use your card to make a transaction you are paying credit card processing fees?
Every time a transaction is made with a credit card there are two sets of fees that need to be paid. The first one is an interchange fee. It is the fee charged by the credit card companies and is split between the credit card issuing bank and the networks. This fee consists of a per-transaction amount and a percentage of the amount of the transaction. This percentage can vary according to specific criteria such as who issued the card, what is being purchased and what type of card it is.
The second credit card processing fees are charged by the merchant bank or an independent sales organisation that has been authorised by the merchant bank. It can also include an amount per transaction and a percentage of this transaction.
It is a very confused setup since quite often the merchant is not told about the interchange rates, and is instead given a discount rate that includes the merchant services fees and the interchange rate.
When it is presented in this manner the merchant has no idea what percentage of the rate is paid to the merchant service provider. Some merchants are paying more than others and being charged different rates for identical transactions.
Processing fees for larger companies
Larger companies usually end up paying less credit card processing fees because they are able to negotiate their fees based on a high volume of transactions that are processed monthly. A business that makes over $20,000 monthly in credit card transactions may be able to negotiate an Interchange Plus fee. This system allows the merchant to pay a flat additional fee in addition to the actual interchange rate.
Smaller businesses will have to pay higher fees until they can get their business growing to the $20,000 per month mark. In the meantime, there is no need to settle for exorbitant fees. You can start shopping around and talking to different merchant services providers to find a good deal.
Many small businesses settle for the first merchant services provider that comes along and strike up a deal. This is, in fact, leaving money on the table because there is room for negotiation and price comparison.
Credit card processing fees vary from store to store and if you are a small business owner it is worth your time to shop around and find out what fee rates are available.