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The Helcim Blog / Merchant Guides

Ultimate Guide to Credit Card Processing Fees (2021)

Danny Randell | June 8, 2021

“A lot of inputs come together to finalize the complete fee that credit card processors charge merchants. Discover how transaction fees work.”

7 min read

Why Do Credit Card Processing Fees Exist?

Credit card processing fees are complicated. And one thing that you’ll remember if you’ve read our How Credit Card Processing Works article, is that everyone involved in the cycle has some skin in the game. That includes the issuing banks, acquiring banks, payment processors, merchants, and even customers! If you haven’t read that article yet, you may want to go back and check it out before jumping into the rest of this post.

To sum it up briefly, the main reason credit card fees exist is because using (and accepting) credit cards is a service that consumers and merchants alike pay to use. Merchants are paying for the convenience of accepting payments, both in-person and online, and consumers benefit from card rewards and from the ability to use funds not in their bank account.

Now wait—consumers don’t really pay do they? Well that depends how you frame it—some businesses will use surcharges to offset card processing expenses, and others will simply up their prices to compensate for these incurred costs, meaning customers are often ultimately the ones paying to use their credit card.

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What Types of Credit Card Processing Fees Are There?

Let’s break the fees down a little further. To start with, the card brands (i.e. Visa, Mastercard) set what’s known as an interchange rate. This fee is what acquiring banks pay to issuing banks for the privilege of processing a credit card on the card network. The card brands get a cut and the issuing banks get a cut, and most of what this interchange fee goes toward is rewards programs for card users and to mitigate fraud risk.

The next fee that merchants need to be aware of is the card processing fee. This is what your credit card processor or acquirer will charge you on top of the interchange rate to process credit cards. (Remember how acquiring banks have to pay issuing banks? Well, they want their money.) You’ll recall that the interchange rate is getting kicked back to the card brands and the banks that issue customers with credit cards, so the processing fee is how payment processors and acquirers get their slice of the pie.

Remember, credit card processing involves a lot of different entities which work together to support the movement of funds from customer to business owner. At the end of the day, all of these entities require some form of compensation for the role they play in making the credit card processing cycle work.

Credit Card Fees to Look Out For

Now besides the processing fees (meaning the fees directly associated with transactions and moving money around the network) there are a host of other fees that merchants can sometimes be charged by their payment processor. The bad news is, a lot of these fees are completely unnecessary, and are only “standard” in the industry because too many companies have been reaping benefits from these types of fee schemes for years.

Here are a few of those hidden fees that you’ll want to keep an eye out for when you’re shopping around for a merchant service provider:

  • PCI Compliance/non-compliance fee (this is a really misconstrued topic in payments, read more about it here)
  • Customer service fees (paying for customer support is just unethical in our minds)
  • Installation fees (do you really need someone to come plug in your card reader for you and charge you an arm and a leg to do it?)
  • Monthly minimums (meaning you’ll be dinged if your business doesn’t do so hot one month)
  • Annual fees (yearly costs sometimes in addition to monthly fees and PCI fees)
  • Cancellation fees (if you don’t like your payment processor, you should be able to leave free of charge, not stay just because you’re locked into a contract)

The bottom line with these fees is that merchants should really never need to pay them. If you’re working with a payment processor that cares about helping you build your business, they’re going to put serving you at the top of their list and make it easier for you to do business—not harder.

Understanding the Pricing Structures

As we’ve mentioned, there are certain fees that come with a lot of payments companies that just aren’t necessary, and you should make sure you’ve done your research before committing to an attractive looking rate or a big brand name. Try and avoid as many of the fees listed in the previous section as possible!

One fee that merchants can’t escape however when it comes to accepting credit cards is the processing fee, meaning the cost of the actual transaction. Now all payment processors charge a processing fee, but they don’t all do it the same way. That’s why understanding your processor’s pricing structure is vital, because all merchants are subject to these, and you want to get the best deal possible.

Oftentimes, payment processors will tout the “simplicity” of their rates, which are indeed often easy to understand, but in reality, don’t benefit the merchants as much as they do the processor. One of the best examples of this is flat rate pricing, which you can read more about here.

Interchange plus pricing on the other hand is the most transparent and affordable pricing model in the industry: see how it compares to flat rate.

Why Volume Matters: Credit Card Fees for Small vs. Large Businesses

Some businesses will receive preferred rates from payment processors because they process a huge amount of transactions (or very large transactions on average) compared to the processing volume of an average business. If you are a business with a lot of volume, make sure you check if your processor has preferred rates for businesses like yours.

If you’re a small business, you may not be eligible for better rates off the cuff, but some processors will offer you volume discounts as your business grows (though you usually have to ask for them).

Can I Reduce My Processing Fees?

The good news for business owners is that there are three tangible ways to reduce your credit card processing costs, one of which you can start doing today!

The first thing you can do (and what you can get started on immediately) is to process more in-person transactions. While online transactions are a convenient way to get paid when people can’t visit your store (and bring your products to more customers), they are deemed higher risk by processors and card brands alike. As such, businesses pay slightly more in processing fees for online transitions than for those processed when the customer pays in-person (known as a card present transaction).

Second, look for a payment processor that applies volume discounts automatically, as this will greatly reduce your costs over time and as your business grows. Volume discounts are a great mechanism by which to save money, but some payment processors don’t even offer them, and others will want you to call in and ask for them, while a select few are currently offering them to merchants as soon as they’re eligible, without any rigamarole.

Finally, to really save on processing fees, look for a payment processor that offers interchange plus pricing. Flat rate is simple, but it doesn’t save merchants money; tiered pricing is generally really expensive for merchants, and interchange plus is not only more affordable, but transparent, so you always know what you’re being charged for.

Final Thoughts

Credit card processing fees are a pain for most merchants, but it’s good to know the difference between the necessary fees and the ones you can avoid; that way, you won’t end up paying more than you need to for essential services. Understanding the different pricing structures that affect transaction fees and how volume processing works can also make a difference to your bottom line, so make sure you do your homework on how the different payment processors operate.

At the end of the day, finding a processor that’s right for you and your business is going to be one of the most important decisions you make as a business owner, so don’t be afraid to shop around. And now you can choose your next payment processor armed with the knowledge of how credit card processing fees really work.

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