Are you a merchant who often tries to figure out the convoluted system of credit card processing fees you see on your statement each month. Maybe you thought you paid a flat percent or a per-transaction amount, or both, but came to find out that total fees are higher than you expected. What is the solution? For starters, it helps to get a handle on the several types of fess and charges, know who the key players are in the process, and figure out what to do next.
Some merchants study the situation and come to the conclusion that they need to switch to a new card processing service, change banks, or stop accepting certain kinds of cards. The good news for business owners is that there are lots of solutions to the merchant fees fiasco.
Priority one is gathering the facts, knowing the lingo, and identifying the players. The short discussion below should give you all the important data you need to make and informed decision.
Facts, Lingo, and the Major Players
Right now, more than $3 trillion of credit is available on cards issued to U.S. consumers. By any measure, that’s a ton of money. It’s more than the gross domestic products of most nations. Put another way, if U.S. credit cards were a country, they were boast the fifth-largest GDP on earth, behind only the U.S., China, Japan, and Germany. Even India’s GDP is less than $3 trillion. So, we’re talking about a massive amount of capital no matter how you look at it.
Merchants pay fees on every credit card transaction that moves through their system, and the amounts are not negligible. When you stop to think that you’re probably paying merchant fees in the neighborhood of between two and five percent, you begin to realize that merchants pay a hefty piece of their income just for the privilege of accepting plastic. What are these fees, and who charges them?
There are primarily three entities that charge fees but there are several factors that have an impact on the totals. Here’s a better way to look at it: When a customer used a card to pay for an item in your store, say a can of soda, you end up receiving most of the price of that item as revenue, less taxes and card merchant fees. Taxes are a totally separate subject, but we can discuss the merchant fees.
Part of the total card fees go to the bank that issued the card (Chase is an example), some of it goes to the credit card network entity (like Visa or MasterCard), and part of it goes to your third-party payment processing service provider (a vendor you selected to help process all the card purchases). But wait, there’s more!
You, the merchant, will also pay more or less of a fee based on whether your customer swiped the card, used a chipped card, or entered the numbers directly into a device (or if you entered the numbers while on the phone with the customer, or if the customer entered the numbers during an online transaction).
Your fees will be higher or lower depending on whether the card the customer whips out of their wallet or purse is a debit, personal credit, rewards, or business credit card.
Finally, your fees will be higher or lower depending on what type of business you operate. Antique stores are charged different rates than car rental agencies, which are charged different rates than restaurants, etc. The processing companies check your data and figure out what business category you belong to. It’s important to know that not all businesses are charged the same rates.
What are “Credit Card Companies”?
Terminology can be tricky when discussing this topic. “Credit card companies” are banks that issue cards. They’re also called “credit card issuers.” But, companies like Visa and MasterCard are NOT credit card companies. They are “multinational financial services corporations” that partner with banks. Companies like MasterCard, Visa, Discover, and others make us the “credit card network.” A good example to keep things straight: Chase (and its many competitors) is a bank AND a credit card company AND a credit card issuer. Visa (and its competitors) is a part of the credit card network but is also a financial services corporation.
Putting It All Together
Here’s a quick cheat-sheet to keep all the information straight in your head. Each category represents either an entity that takes a piece of your total fee or a factor that affects your total fee.
- The Banks: Banks get a percentage of your transactions, but are not the main source of total fees. The credit card network and payment processors make up the bulk of fees.
- The Credit Card Network: The card networks get a percentage as well as a per-transaction flat fee in some cases.
- Payment Processors: Processors also get a percentage or flat fee, or a combination of the two.
- Type of Card: Debit and regular credit cards charge less than business and rewards cards.
- How the Card is Processed: Swiping is cheaper than online transaction in which customers enter digits themselves.
- What Type of Business You’re In: Some merchants pay more than others based on their occupations.
How To Monitor and Reduce Your Total Rates, Fees, and Charges
There’s a very effective way to stay on top of it all: read the fine print of your monthly credit card statements. Yes, it can be boring, but remember, it’s your money. If you discover that you’re paying too much, there are ways to reduce the fees. For example, you might decide to stop accepting business or rewards cards, decide to choose a less-costly processing vendor, or offer customer discounts for cash transactions.
If you’ve ever been to a store that displays prominent signs saying, “Three percent discount for cash-paying customers,” then you know the situation. That merchant saves money when customers pay cash as opposed to credit cards. When it comes to paying merchant fees, there are all kinds of ways to avoid paying too much.
Here are some ways to keep your total fees as low as possible:
- Study your monthly statements Spend time reading everything and use a calculator to decipher any complexities. Stick with the task until you have a solid grasp on exactly who is charging what, and why.
- Consider offering discounts for cash payments. Even small discounts can be enough of an incentive to offset a large chunk of the total merchant fees you pay each month. At the end of the year, you’ll likely notice that you’ve saved several hundred dollars on what you paid before instituting the cash discount policy.
- Don’t accept rewards or business credit cards Rewards and business credit cards have the highest fees of all. Consider not accepting them. In the end, what you save in fees will likely more than offset the small amount of business you lose out on.
- Switch banks or processing companies to get a better rate It’s always a good idea to shop around for bargains. If you are an established merchant with a solid reputation and good credit, it’s quite possible you can find lower fees by changing banks or processors, or simply asking your current bank or processor for a lower fee scale.
Don’t Be In the Dark About Merchant Fees
At Metro Payment Technologies, we have the solutions to help you get the most out of your credit card systems. There’s no reason to be in the dark about fees and charges. We’ve been in the payment processing business for years and can help you build a customized payment processing solution that makes sense and keeps fees to a minimum. Give us a call at our toll-free number, 1-800-771-3719, and we’ll be happy to discuss your situation. Or simply visit our website to learn a little bit more about what we do. Don’t let credit card merchant fees ruin your day. Get clarity and solutions that can make a difference for your peace of mind.