What are credit card processing fees?

Perhaps you have just started your business, or are thinking about choosing a payment provider. In any case, in order not to face payment providers that offer too many charges, this article will help everyone to learn more about credit card processing fees.

What parties influence credit card processing fees?

A payment gateway provided by payment providers such as PayOp performs the technical integration of the payment system into the merchant’s website and provides various payment methods.

An issuing bank The role of the issuer is to check the card for validity, as well as to confirm the availability of the required amount to pay for the purchase.

The acquiring bank is responsible for processing transactions, as well as controlling the transfer of funds from the client’s card to the company’s bank account.

When the acquirer receives information about the transaction from the payment gateway, it sends a request to the issuing bank to verify the card details (authorization). If there are no violations, the acquirer will reserve the required amount on the client’s account. After receiving the goods, the amount is transferred to the merchant’s account.

Payment systems such as Visa and MasterCard are required to provide communication between the acquiring bank and the issuing bank.

Just like issuing banks, payment providers charge a percentage for a credit card transaction, plus a small, flat fee, which is usually $ 0.2-0.5.

Let’s have a more deep understanding of the types of such fees.

What do credit card processing fees include?

Interchange fee

The interchange fee is a commission that financial institutions involved in servicing bank cards pay to each other in the process of digital transactions.

As we wrote above, transactions are monitored carefully before they are approved (the acquiring bank sends a request to the issuer). It is for this operation that the Interchange fee is paid. In other words, the financial institution serving the store takes an acquiring commission from it and pays part of this money to the bank that issued the debit or credit card.

There is another procedure, the so-called reverse Interchange fee, when, on the contrary, the issuing bank pays to the servicing bank. For example, if a customer receives cash from an ATM of a third-party lending institution. In this case, a portion of the transaction fee is paid by the issuing bank to the organization that owns the ATM network.

The size of the Interchange fee affects the acquiring commission and, accordingly, the company’s profit. If the markup to the cost of the product is small, as is the case in a small retail business, then the size of the commission may approach the percentage of the organization’s profit. Therefore, the owners of retail outlets often prefer cash exclusively and do not work with bank cards at all.

The types of interchange fees

for international payment systems, the calculation of Interchange Fee is a difficult task, since it is necessary to take into account the interests of both the acquiring bank and the issuing bank. Certain parameters affect the Interchange Fee:

1. The type of business and Merchant Category Code(MCC). MCC code is a four-digit number that designates the type of activity of the company when making non-cash payments for goods and services by bank cards. This code is the main factor affecting the size of interchange fees.
2. Business risk type. For high-risk industries, the interchange fees will be higher, while they often charge a fee for rejected transactions and additional charges for refunds and chargebacks.
3. The type of bank card. If the card has a Gold or a Platinum status it has more benefits, but also, interchange fees will be higher.

If you operate a big business, your payment provider may offer customized rates that are below the market.

Markup fee

• Payment gateway provider fee

To receive payments on the site, a business needs a merchant account. It is required to receive funds from buyers and verify transactions before sending them to the merchant’s personal account. The payment provider is responsible for providing a merchant account and controlling the flow of payments.

For its services, the company charges a small commission. This fee most often depends on the amount of the transaction and the type of business (for high-risk businesses, the fee will be higher).

Besides, the payment provider may charge a monthly service fee and some additional fees.

• Chargeback fees

In the process of operating an online business, many issues may arise, and chargebacks are one of them. Chargebacks are undesirable conditions for any merchant and when they appear – the long procedure starts that involves several parties.

During the procedure, which can take up to 6 months, acquiring bank, issuing bank, card network monitors transaction on possible fraud. For this service, acquiring a bank charges a certain amount to cover its efforts that complies with 20-100$ for one dispute. Even in the case of a dispute resolved in the merchant’s favor, the fee will be charged.

• PCI DSS fee

Payment providers sometimes charge PCI DSS fees from merchants. Most often, such a fee does not correspond to the offered services in full and can reach up to $ 100 per month. Besides, a $ 20 fee may also apply for non-compliance.

This service is not regulated by law, so payment processors themselves decide whether to impose an additional fee on the merchant or not. In some cases, if you work with reliable suppliers, this fee is justified by the presence of all the necessary features to run your business smoothly. On the other hand, many processors often do not provide all the necessary features, although they do require a fee.

PayOp payment aggregator provides free protection against any online threat and meets the highest security level PCI DSS level 1.

• Cancellation fee

Merchants may ask to cancel their merchant account for many reasons:

1. In the case of business sold, a new owner wants to use a different merchant account.
2. Payment gateway provider doesn’t meet your requirements or you have a bad experience with it.
3. The business is too large for this merchant account and needs something bigger.
4. You’ve found a more attractive merchant account with larger services and affordable rates.

A cancellation fee is a payment that a merchant must face when they decide to quit a current payment partner before the contract date.

Find out whether a chosen payment gateway provider has such a fee or not.

• Setup fee

The implementation of a payment gateway on a business website requires a strong technical background and a team of developers. For this reason, merchants may sometimes face companies that charge for payment platform integration.

The bottom line

Each payment provider charges a fee for their services. Some of them are required, others can be avoided. If you have a large business, try to negotiate a fee reduction – almost always you will be assigned an individual, more attractive, tariff plan. Nevertheless, lower fees don’t mean better services. We, at PayOp value our customers and offers a wide range of payment solutions for businesses around the world and charge only transaction fee. All our customers can rintegrate a modern payment platform within one day for free.

For any inquires you can contact our team and get comprehensive assistance in issuing any payment processing problems.

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