Your Guide To Explore Credit Card Processing Rates & Fees

Complex, daunting, and overwhelming are the words to describe credit card processing fees in the best way. Sadly, to process credit cards effortlessly, paying the fees is important. However, instead of paying the charges without thinking, it is required to understand them. This is because it helps to dispute any amount that seems unfair or isn’t clear the right way.

Credit Card Processing Rates

Generally, most of the merchants know the processing rate(s) they were charged during sign-up for the account or are aware of the rates that are advertised by the processors. Why there’s so much difference in the processing rate then? Because some of the quoted prices are only a processor’s markup on the wholesale price of the transaction. However, others are a combination of wholesale cost and processor’s rate markup.

Various Type Of Merchant Account Fees

• Transactional Fees

These are charged when a transaction is run and represent the largest cost to run a merchant account. They come in two forms:
1. Percentages
2. Per-item dollar amounts
Both are charged on a transaction quite often

• Scheduled Fees

Apart from the transactional fees, there’s an expected flat fees too. They differ in terms of name, applicability, and value. Few among these are shown on the monthly statements.

• Incidental Fees

Though scheduled fees are charged always, incidental fees appear at each occurrence. Chargeback fee is charged when a chargeback takes place. However, the fee is not charged if there are no chargebacks.

Parties Involved

To understand card processing fees, it is important to know about the parties that play a major role in the industry. These are:

• Credit Card Associations: These are the companies that create cards like American Express, MasterCard, and Visa. It can be said that these are the guys who form and set the rules.
• Credit Card Issuing Banks: These refer to financial institutions that are responsible to issue credit cards. Some of the card associations perform the role of a bank too and create & issue their own cards.
• Credit Card Processors: These serve as messengers between the merchants and the credit card associations and are also known as Acquiring Banks or simply Acquirers. To enable the merchants to complete the transactions, they convey batch information and authorization requests. For a single transaction, a merchant may run into many acquirers.
• Merchant Account Providers: With the help of an acquirer, companies manage credit card processing. These can be independent sales organizations, financial institutions or double-duty acquirers as per the situation.
• Payment Gateways: As special portals, they route transactions to an acquirer, especially in terms of an online shopping cart.

Wholesale &. Markup Fees

Both these terms are heard a lot in the processing industry; hence, being confused about fees is quite obvious. However, understanding the difference isn’t too hard because the major considerations include:

1)Which party is collecting the fee?
2)How fixed is the cost in the industry?

Everything that needs to be understood is here:

Wholesale Fees

• Can’t be negotiated
• Fixed no matter which processor is used
• Parties involved are Credit Card-Issuing Banks and Credit Card Associations

Markups

• Negotiable
• The amount differs from processor to processor
• Parties involved are Credit Card Processors and Payment Gateway along with additional equipment or software providers

Importance & Purpose Of Interchange

Be it any card or transaction type, it has a certain interchange fee that is set by the corresponding card association. This fee is taken by the card-issuing bank. Owing to the major role of interchange fees in the world of processing, pricing models used by card processors are based on the way interchange fees are tackled.

Pricing Models Of Payment Processing

Interchange-Plus

It breaks down wholesale fees & markups and lists them on the monthly statement. Interchange-plus rate markups include a percentage markup as well as a per-transaction fee markup. Both of them are applied to every transaction.

Subscription/Membership

Here, there is no need to pay any percentage markup on transactions as a small per-transaction fee is charged. As a monthly subscription fee, an additional markup is charged.

Tiered

These pricing plans differentiate credit card transactions into three categories:

• i. Qualified
• ii. Mid-qualified
• iii. Non-qualified

Among the three, qualified rates are the lowest, mid-qualified are a bit costly and non-qualified are the most costly. Qualified transactions have to complement the criteria of a processor for processing. Not meeting the standards degrades mid-qualified or non-qualified tiers.

Flat-Rate

Irrespective of the wholesale cost, each transaction costs the same percentage and transaction fee. Every cost is put together to form a reliable rate along with the fee. This increases the rate of the transaction, majorly for debit transactions. However, the pricing model is good for low-volume businesses because processors that use blended rates don’t charge any monthly fee.

This is just an overview and a lot more is there to know. How to explore that? Well, get in touch with us and discover the undiscovered.