The credit card processing industry is often lacking in transparency, with statements that can be difficult to decipher. If you’re having a hard time grasping credit card processing for your business, here's a quick guide to help you understand the main charges, pricing models and unnecessary fees.
Main components of credit card fees:
Typically your fees are made of three different parts:
- Issuing Bank Fee: A fixed fee determined by the card-issuing bank (e.g., Capital One, Wells Fargo) and the card type (business, personal, rewards, etc.).
- Visa/MasterCard Fee: A non-negotiable fee applied to every transaction.
- Processing Fee: Set by your processor, this is the variable "rate" you pay and the most significant part of your fee structure.
Common pricing models:
When choosing a pricing model for your credit card processing, it's essential to understand the options available and how they impact your costs. Here’s a breakdown of the most common pricing models to help you determine which might work best for your business:
- Flat Rate: A single rate regardless of the card type. This can be more expensive for most businesses, as it covers cost for even the highest-priced cards. Best for small or affluent-area businesses.
- Cost Plus: Combines the transaction cost with a negotiated add-on rate (basis points). Generally, this is a better option for most dealers, but beware of higher charges if customers provide incorrect information, like an invalid zip code.
- Surcharging: Passes the credit card fees (up to 3%) to customer, significantly reducing your processing costs—up to 75% in some cases. However, it requires compliance with strict Visa/MasterCard regulations and proper software support.
Always look out for obscure junk fees:
Many processors include vague or unnecessary “junk fees” in statements that you need to watch out for. For example, if you ever see “PCI Certification Fees” those are often unnecessary. Valid fees include charges like “monthly connection” fees (around $40-$50), or “per transaction” fees (around $0.10–$0.20).
In summary, always remember to...
- Choose a pricing model that works best for your business. Do your research and ensure you choose a model that isn't costing you too much.
- Stay compliant with payment regulations. Ensure proper processes (especially if you do surcharging) to avoid penalties or loss of processing privileges.
- Use the right tools to monitor transactions. Incorrect information or stolen cards can cost you, as you’re liable for fraudulent transactions. Use a software system that can flag any errors to avoid higher charges.
By understanding these fees and carefully reviewing your processing statements, you can save significant money while maintaining compliance. If you’d like us to review your own credit card statement, or would like to learn about our own QPay credit card processing service, please reach out to sales@qprosoftware.com
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