Understanding and Lowering Credit Card Processing Fees
Merchants looking for high risk credit card processing will want to know the fees associated with their account. It's important to understand which fees apply to the various transactions in an online purchase. Accepting credit cards is a great way to expand your market, but how do you find the lowest processing fees? Be prepared to shop for different merchant account providers and see which is most suitable for your business.
What are Credit Card Processing Fees?
Accepting credit card payments online often involves payment processing fees. Each time a customer pays using a credit card, the respective card company charges the merchant a processing fee. So, this means that you don't receive the full charge every time someone pays with their cards. Processing fees are often made up of a couple of different fees. Some fees are charged every time someone makes a purchase. These include:
- Transaction charges
- Merchant service charges
- Authorization fees
- Chargeback fees
However, on top of these, you may also have to pay monthly or yearly subscriptions to processing services. Also, merchants may have to pay initial set up costs for credit card processing and for any physical credit card terminals needed. Individually, these fees may not seem like much but can quickly add up.
PayPal Credit Card Processing Fees
PayPal credit card processing fees are at a standard rate for companies. It's usually around 2.9% of total revenue, plus $0.30 per transaction.
Square Credit Card Processing Fees
Square credit card processing fees are identical for USA online transactions at 2.9% and $0.30 per transaction.
High Risk Credit Card Processing Fees
High risk credit card processing fees range per business, industry, and the amount of volume you're processing. In general, there is often a premium associated with high risk merchant accounts. The fees usually range from 2% – 5%. The variability is due to the range of businesses that fall under the umbrella of high risk. If you're a large company with an established history, you'll have lower rates than a startup with a limited sales history.
How Much Do Credit Card Processing Fees Cost?
The cost of processing fees often varies on a couple of factors. Transaction fees may sit between one and three percent for each transaction. For example, a $5 purchase would come with a processing fee of up to $0.15. This is why a lot of retailers often charge a minimum on the use of credit card machines. Keep in mind, the rate varies depending on whether a merchant is selling high or low risk goods.
On top of this, merchant processing services charge a fee for credit card transactions. Transaction fees often add on another two cents worth of fees. Monthly charges are often more substantial but may even out over time. Consequently, the more you use your credit card processing service, the better value you get for your money.
Setup Fees
Processing services often charge around $13 a month for processing and between $65 and $130 for their initial setup. Set up fees are one-off payments, as is the cost of any equipment that you buy. Card machines usually cost between $65 and $100 for one unit. Merchants may also have to pay a PCI compliance fee each month. This is around $4.50.
The final costs are chargeback fees. A chargeback occurs when the funds collected must be returned back to a customer. This involves an initial processing fee plus a chargeback. Chargebacks are a high risk transaction. Consequently, they will cost a merchant much more. These fees can start at $10 and go up from there.
How Are Online Credit Card Processing Fees Decided?
Credit card processing fees depend upon many factors. The scale of the credit card company a merchant uses can vary the price of fees. Additionally, the type of merchant you are and the goods you sell impact the fees. A high risk merchant who sells CBD may have higher fees than a low risk merchant who sells produce. The bank you use will charge their processing fees, as will different credit card providers. This is why it's a good idea to make sure you use a bank that accepts all major credit cards to help lower fees.
Different payment processors will also charge different fees. They may also present you with different payment plans for their fees. For example, some processing services incorporate your transaction charges into their monthly bills. Others will deduct the charges as you go. Many providers also offer mid-qualified or non-qualified rates. Often, they will advertise the qualified rates that they offer debit card transactions. Mid-qualified rates are usually better than non-qualified transaction rates. These rates only work for selected credit cards. Non-qualified services will allow you to accept payments from any credit card users but will charge you more each time.
Choose a Fee Structure That Works
Merchants need a fee structure that best suits their market. Choosing a fee structure that complements a merchant's business model is key for lowering credit card processing fees. If a merchant's stock consists mostly of expensive items, then you want to go for the lowest percentage rate possible. In this case, a merchant may opt for an interchange rate rather than a flat fee. Interchange rates charge a percentage of the transaction price. This covers the interchange rate and the assessment fee.
For low to mid-price transactions, you need to take a look at how much the 0.1% percentage difference is worth. If it's usually worth more than $0.30 then you should opt for an interchange rate. However, if it's less than $0.30 then a flat fee rate is probably best for you.
Establish a Credit Card Minimum
Setting a minimum for credit card payments helps merchants combat processing fees in two ways. First, it encourages customers to use an alternate form of payment who don't want to spend much. This results in merchants not being charged a processing fee at all. However, if customers do want to pay on credit cards, setting a limit balances out some of the expensive fees. Many merchants set their minimum spend on a credit card at $5 or $10. As a result, merchants will make more profit overall and can absorb some of the setup and maintenance costs of processing.
Use Secure Checkout Methods
Providers charge less if you ask customers to use the most secure methods of payment possible. Using a chip reader is the most secure checkout method to date. So, processors offer discounts since the margin for error has been minimized. Chip readers are much better than asking customers to swipe their cards or tap their contactless. Using a chip reader means that you remain EMV compliant, and therefore more secure. For online merchants, make sure you sign up for a secure payment site. Redirecting customers to a secure checkout might take a little longer, but it will save money in processing fees.
Budget Online Credit Card Processing Fees into Prices
Merchants will never be able to avoid credit card processing fees completely. However, merchants can forward these fees to customers. This can be done by factoring in the amount it costs to process a product into the displayed price. This practice is called surcharging. Surcharging is a legal practice. But, credit card processing companies have strict guidelines that must be adhered to.
Don't Compromise on Quality
Credit card processors play a big role in ensuring customer satisfaction. Additionally, they provide a safe and secure way to receive payments. So, it is important to ensure quality when looking for a credit card provider. Merchants want a provider that can guarantee that they handle service securely. For more information on this, it's always worth looking for reviews from previous clients online. This may bring up any red flags that you should know about before you sign up for a service. Another important thing to look for in a processor that has good customer support.
PayKings Can Save Merchants More
When it comes to getting a good deal on credit card processing, shopping around is the key. PayKings can take the hard work out of it by finding merchants the best rates around. With over twenty trusted and proven bank relationships, PayKings has so many options to choose from. Our payment processing experts can help merchants decide which option best suits their business. Additionally, we can even guide merchants through the steps on the implementation of their new credit card processor!