Credit Card Processing Fees: All You Need to Know

Going cashless and paying through Credit Cards is a buzz today. However, if you are a business owner, accepting payment through cards and online gateways, come along a lot of careful planning and processing. There is a cost attached. And these charges are termed as Credit Card Processing Fees.

Let’s quickly take a quick look at the different aspects of credit card processing fees. As a business owner, you must know about all the associated costs involved.

To start with, card processing fees vary from gateway to gateway. Generally it can range from 1.5% to 2.9%, while for keyed-in transactions processing fees can be as high as 3.5%, owing to the higher risk involved.

Parts of the Credit Card Processing Fee:

There are various parts of the credit card processing:

· The Method of Processing

When a physical card is posed for transactions, i.e., in case of a swiped transaction or chip verified transaction, the risk involved, due to chargeback at the bank’s end is lower and thus it has a lower processing fee. On the other hand, with respect to the transactions, where card is not present, the risk involved becomes higher, i.e., there is a greater chance of fraud or charge-back, which results in the higher processing fees.

· The Size of your Transaction makes a Difference

The smaller the size of the transaction, the more one pays in the form of transaction charges. When you compare size of your transactions and transaction charges, you would see the difference in terms of processing fees that you are paying.

· Your Business Type makes a Difference

Different business types attract different type of credit card processing fees.

When a customer swipes the credit card, the process seems pretty simple at their end. It appears almost the same whether it is a premium credit card or a classic credit card or the one from the Best Credit Cards in India. However, when you just enter the chip in the chip reader or swipe the card, there is a lot that happens in the background. Including the processes that take place, there are also a lot of parties that are involved.

Let’s understand what are the parties involved during the card processing –

1. Card Issuer

The card issuer is the issuing company of the card to the customer. The bank charges the merchant or the business a flat fee in exchange of processing the transaction.

2. The Card Network

The card network represents the brand of credit card like Visa or Mastercard.

3. Merchant is basically the middleman that stands between the issuing bank and the merchant bank and even you for that matter.

4. Payment gateway

Mainly when you have an e-commerce website or an online payment system, the payments have to go through a payment gateway. The work of the payment gateway is to encrypt the data that is entered by the consumer and send to the issuing bank for the authorization of the payment.

Different Types of Processing Fees

There are mainly three types of processing fees that you, as a business, need to worry about –

1. Transaction fees

These form the biggest part in the cost of payment. A transaction fee is charged for every single card transaction.

2. Flat fees

Flat card fees are different for every card processor or every payment gateway. These are paid on annual or monthly basis depending on your subscription.

3. Incidental fees

These are only charged in case of charge-backs or insufficient funds.

Other one-time or miscellaneous fees

1. Set Up Fees

These might be charged by the account provider at the merchant end or might not be charged. This is mainly charged when you have your account is setup with the merchant.

2. Account Cancellation Fees

Certain merchants charge a cancellation fee when you want to cancel the contract with them.

3. Monthly Subscription Fees

These are fees charged by your merchant account provider towards PCI compliance and customer support. Also, some merchants charge it in case a minimum transaction amount is not completed every month.

4. Terminal Fees

When you are running a physical store, you need to maintain a terminal for the customer’s credit card to be swiped. This charge is for that terminal, it might be a one-time charge or a monthly charge depending on the merchant.

5. Payment Gateway Provider Fee

When you are selling products through an e-commerce website or have an online payment system, you need to pay a certain monthly or one-time annual charge for availing the online payment service. However, some merchants might not charge the same.

6. Statement Fees

Certain merchant account providers may charge you for sending across the statement.

7. Merchant Discount Rate (MDR) or Merchant Service Fee
MDR involves interchange fee (fee paid by acquirer to card issuing bank), processing fees and other charges payable to the card network, plus other costs borne by the acquirer besides the acquirer’s margin.

These were some of the essentials that a business owner must know about Credit Card payments.