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Your Guide to Average Credit Card Processing Fees

January 6, 2020 / Posted in Credit Cards

If you want to stay relevant in the market today, no matter what types of services or products you offer, you would have to introduce cashless payment options to your business. However, you should be familiar with the average credit card processing fees to be able to optimize your monthly expenses and set your business on a path to success.

How Does Credit Card Processing Work?

A cashless payment transaction is carried out by a few parties. First, your customer will swipe or key in the payment with the cashless option of choice on the POS system in your store or other type of establishment, and the information will go through a secure channel to the issuing bank for approval or rejection. Once authorized, the transaction details are sent to the merchant’s bank, which deposits the funds into the merchant’s account, minus any processing fees. Finally, the customer’s bank statement reflects the completed transaction. The party that communicates and processes the payment information is a credit card processing company.

A pile of cards on a desk ready for credit card processing services

What Are the Types of Processing Fees?

Understanding credit card fees is crucial for cashless purchases. Merchant services and credit card processing involve navigating different costs. To put it simply, when processing payments, whether card-present or card-non-present, you are paying certain fees to the credit card processing companies, credit card brands, and the issuing bank. There are charges that can be tweaked and negotiated, and there are some that are fixed. They are separated into three major categories:

Interchange Fees

Interchange fees are the fees charged by the credit card issuing bank. The bank charges a certain amount for the transaction, and it is agreed upon by all the banks that are providing this service. In other words, interchange charges are the same for all. However, they are not static and the issuers change them over time. The structure of the interchange fee goes somewhere along these lines:

Percentage of the transaction + fixed sum per transaction = interchange fee

For example, for a $5 ticket, for a swiped transaction, your interchange fee would amount to:

1.60% x 5 + $0.10 = $0.18 on average

Assessment Fees

These fees are charged by brands such as Visa, Mastercard, Discovery, and American Express, for assessing the validity of the transaction and the communication between the issuing bank and merchant account. It can vary between these associations and it is also susceptible to change. Those fees are calculated as a percentage of the paid amount, and at the moment they hold this value:

  • Visa: 0.14%,
  • Mastercard: for a ticket that is under $1,000 the fee is  0.1375%, and for a ticket above $1.000, it is 0.01%,
  • Discover: 0.13%,
  • American Express: 0.15%.

Processing Fees

These fees are charged by your payment processor (merchant services provider), and since this is a big and competitive market, they can differ greatly from one processor to another. The companies in this business are not bound by any kind of agreement like the brands and issuing banks are, and they could even have different offers for some types of businesses, special arrangements for large companies, and different pricing systems.

How Much Are the Average Credit Card Processing Fees?

You have to be aware that some processors are more suitable for small businesses, some for larger companies, and some are better for e-commerce payments. The structure of the charges is also different. Some processors charge only a percentage per transaction, while others may charge a percentage plus the fixed sum per transaction. On average, their fees range from 2% for swiped transactions to up to 3.5 % for keyed-in or online payments. Usually, when the percentage is lower, there is a fixed $0.10 fee on top of it for every ticket.

Person typing in information

Can You Optimize Your Expenses?

When making your business strategy, what you should be focused on, as far as processing expenses go, are the negotiable processor charges. If you already run a business and have a processor, it is not a bad idea to grab a few statements and check your expenses. If you are not bound by a contract, you can choose another provider if they have a better offer. Also, pay attention to the type of processor that would be best for your business and the fee structure.

The Difference Between Payment Processing Providers

There are two main types of these providers: merchant service providers and payment service providers. With merchant service providers, you have your own merchant account for the processed funds to land on, while payment service providers have one joint account for many merchants. Also, payment service providers usually do not bind you with any contract, so you can change them at any time without breaking the bank for sometimes very expensive early-contract termination charges.

What Are the Expenses That You Can’t Change on Your Statement?

As you may have already deduced, the charges that are non-negotiable and therefore, can’t be influenced are interchange and assessment fees. They are charged by card brands and issuing banks. However, there are slight differences between them too, and no matter how small they are, they could influence your business, too. Besides, you cannot influence which cards your customers will use, and which bank.

Which Model Is the Best One for Your Business, Big or Small?

What you should focus on here is the amount of money you charge on credit cards or the volume of your transactions, and even more importantly, the average ticket price. Why is that? For example, if you process many transactions worth smaller amounts daily, you will lose money with the percentage plus the fixed amount structure. Your best bet would be the percentage-only structure. It is usually, but not always, the opposite for the bigger-ticket value businesses. There is also a possibility to pay a flat rate every month, which some providers offer, and have a lower percentage charge for every transaction.

What Are Your Options?

Besides the charges, you should also pay attention to the whole system. Some providers offer free software and hardware for your transactions, but some of them can’t integrate with all the systems, while others don’t have a good and secure gateway. However, there are a few of them with an established reputation that offer great deals.

Our Top Picks for the Best Average Credit Card Processing Rate

The ones that pop out the most in the sea of credit card processing companies have favorable rates, good POS systems, and secure payment gateways. These are:

Business people negotiating a contract, they are pointing on a document and discussing together

Key Considerations for Business Owners

Embracing cashless payment options has become indispensable for businesses aiming to stay competitive in today’s market. However, understanding the landscape of credit card processing fees is crucial for optimizing expenses and ensuring sustained success. By familiarizing yourself with average credit card processing fees, you can navigate negotiations effectively and set your business on a path to financial efficiency and growth.

Ready to optimize your business’s credit card processing expenses? Contact Merchant Chimp today to explore tailored solutions and expert guidance for maximizing your profitability while maintaining top-notch service for your customers’ payment needs.


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