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Credit Card Processing Fees Explained - Beyond Bancard

Credit Card Processing Fees Explained

Essential things to know about credit card processing fees

When one thinks about merchant account offerings, credit card processing strikes as the most demanded service today. The credit card transactions crossed the figure of 45 billion as per the 2020 Federal Reserve report related to card bank profitability. Despite the effect of the COVID-19 pandemic, the future of the credit card processing market seems bright as the rising sun.

Many merchant ventures might be keen to adopt and know more about offering credit card payment options to their clientele. One of the critical elements of the credit card payment industry pertains to credit card processing fees. Beyond Bancard can help you discover what credit card processing fees entail for you.

What does the term credit card processing fee denote?

Primarily, credit card processing fees refer to the overall charges that a merchant entity has to bear to accept credit card payments from their respective clients.

Why do merchants have to oblige to such charges? Let us take you behind the scenes of what aspects kick start once you swipe a credit card for payment. A merchant swipes to accept payment; their selected credit card processor will get a payment authorization notification. Thus, all the transaction details are shared with the appropriate card network like Visa or Mastercard.

The issuer bank of the customer who swipes the credit card shall confirm the authenticity and ability of the client to pay the required sum. In case of any issue, the issuer bank shall disapprove the transaction. However, if all compliances get met, the transaction gets approval. The intimation of acceptance or denial of the payment reaches the merchant venture’s bank via the card network. Hence, the amount is deposited in the merchant account for the waiting period. Later, it transferred to the merchant business’s bank account. Learn more about what is a POS System.

What are the prominent pricing models involved in credit card processing?

Percentage markup model

Also known as the interchange plus model, the service providers impose an extra percentage cost over the interchange for each card payment under this model. The amount payable under this model depends on the type of credit card that the provider process.

Tiered rate

Under this pricing model, the provider classifies the credit cards to be processed in different tiers. They hold the authority to charge merchants arbitrarily based on factors like the popularity of the credit card plan and the level of services covered.

Flat rate

It is one of the most popularly used models. Card processing parties impose a fixed rate instead of percentage markup under this pricing model. The flat rate levied varies from 0.5 percent to around 3 percent as per the card network associated.

What are the necessary components that fall under the ambit of credit card processing fees?

Generally, the significant variants of credit card processing fees cover

1. Transaction fees

This type of charge is associated with every credit card transaction that a merchant undertakes from his client. Every user has to pay the card network ventures like Visa and American Express for accepting credit cards. Generally, transaction fees get further bifurcated into two forms of charges. These two forms of payments stand as mandatory costs that credit card processing entities levy on merchants.

Interchange fees

The interchange rate represents the costs that issuing banks levy on the receiving bank for every credit card transaction its customer initiates. Interchange fees represent the source of income for issuing banks to assist in the payment process. The interchange fee is primarily a non-negotiable charge that merchants have to bear regardless of the card processor they engage. Banks calculate the interchange rate as a percentage of the transaction amount involved. It also stays subjective to the credit card type that one runs.

Per-transaction fees

The cents per transaction charges are flat fees that merchant ventures need to pay for every customer credit card payment that their card company processes. In the US, usually, this fixed fee ranges between 20-30 cents for every payment.

2. Recurring payment fees

The card networks and banks can also impose other forms of transaction fees that are actually not essential by nature. These recurring fees act as a way of generating additional revenue for card companies. Common types of recurring payment comprise:

Statement charges

This type of recurring fee refers to the costs of administration of the accounts of various merchants. Service providers include these fees to deploy offerings like periodic statements.

Monthly minimum costs

The bare minimum charges that credit card processors levy on businesses irrespective of the fact that the volume of credit card payments accepted fall below the pre-determined limit.

IRS report fees

This type of recurring fee represents the form of charges that merchants have to pay to their payment processor for showcasing respective information to the Internal Revenue.

Next day funding charges

There are instances where merchants might want to receive their funds the very next day the respective credit card transaction processes. In such instances, the merchant has to bear next-day funding fees from the processor.

Batch fees

Another sub-category of recurring payment that some merchants have to pay includes the batching costs for multiple transactions. In the case of various credit card payments throughout any given day, the payment processor processes a whole batch of different transactions together. Thus, they deposit funds for an entire batch rather than a single payment.

3. One-time costs

Merchants who want to offer credit card payment options to their clients must also consider the one-off charges that come their way. Such one-time credit card processing fees include setup charges, terminal fees, payment gateway charges, PCI compliance costs, address verification charges and chargebacks.

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