For merchants, processing credit card transactions is a source of both comfort and concern. Every time you complete a customer’s purchase, you’re hit with several processing fees.
Now, it’s impossible to deny that processing fees are a key part of doing business for merchants of all stripes. That said, each payment processing company has its own fee schedule. If you look hard enough, you’ll find processors that use a business model that minimizes many of these charges to the point you won’t see those fees on your monthly statement.
What types of fees do payment processors usually charge? We can fit them into three main groups: interchange fees, merchant service fees, and additional fees.
Interchange fees make up most of your credit card processing fees. They’re non-negotiable and set by credit card networks such as Visa and MasterCard. These fees go to the issuing bank and serve to partially cover the costs of each transaction, as well as eliminate potential credit and debit card fraud risks at checkout.
Your interchange rate is in large part influenced by the type of business you run. Low-risk businesses usually pay lower interchange fees than businesses in higher-risk industries. As far as cards are concerned, PIN-enabled debit cards come with the lowest rates whereas high-tier reward cards are usually charged higher rates.
Merchant Service Fees
Your payment processor will charge you for a multi-component service fee package. Depending on the processor, these services will include all or some of the following:
• Setup fees: For connecting to the company’s network
• Virtual terminal fee: Allows you to manually enter a customer’s card details
• Payment gateway fee: Monthly fee for payment gateway access
• Minimum fee: Monthly fee for not reaching predetermined transaction numbers
• Batch fee: Covers the batched submission of your daily transactions
• PCI compliance fees: For handling compliance issues
• PCI non-compliance fees: For not meeting PCI criteria in a given month
• Statement fee: Monthly fee covering statement preparation services
• Cancellation fee: A substantial fee for canceling your contract prematurely
Additional fees include the AVS fee, which is an anti-fraud measure charge. AVS serves to verify a cardholder’s zip code and address, and this fee only costs a few cents per transaction. The voice authorization fee is also a part of anti-fraud protection, and it involves your POS terminal reminding you to contact the card-issuing bank to verify the transaction.
Your payment processor will also implement assessment fees, which are set by card brands. These fees allow you to use a specific card brand and cover the card networks’ operating costs.
Finally, there are the dreaded chargeback fees. A chargeback occurs when a customer disputes a completed transaction through their card issuer. At this point, your processor will assign you a chargeback fee to cover any chargeback-related costs. Unless the dispute is resolved in your favor, you’re unlikely to see that money back.