Credit Card Processing Fees
There are several structures for credit card processing fees, which can vary based on the payment processor, card type, and transaction volume. Here are the main fee structures, along with examples of each:
- Flat Rate Pricing: In this model, the merchant pays a fixed percentage and/or a fixed fee for each transaction, regardless of the card type, transaction volume, or other factors. Flat rate pricing is simple and easy to understand, making it a popular option for small businesses.
Example: Square charges a flat rate of 2.6% + $0.10 per transaction for swiped, dipped, or tapped transactions.
- Interchange Plus Pricing (Cost Plus Pricing): This pricing model is based on the actual interchange fees set by the card networks (Visa, Mastercard, etc.) plus a markup charged by the payment processor. The markup typically consists of a percentage and/or a per-transaction fee. Interchange plus pricing offers greater transparency and can be more cost-effective for merchants with higher transaction volumes or those accepting a variety of card types.
Example: A payment processor might charge 0.25% + $0.10 above the interchange fees for each transaction.
- Tiered Pricing (Bundled Pricing): In the tiered pricing model, transactions are grouped into different tiers (e.g., qualified, mid-qualified, and non-qualified) based on factors such as card type, transaction method, and risk. Each tier has its own fee structure, with higher fees for transactions deemed more risky or costly. This pricing model can be less transparent and more expensive for merchants, as the payment processor has discretion in assigning transactions to tiers.
Example: A payment processor might charge 1.50% + $0.10 for qualified transactions, 2.50% + $0.10 for mid-qualified transactions, and 3.50% + $0.10 for non-qualified transactions.
- Surcharging: Surcharging is not a pricing model per se, but rather a method of passing credit card processing fees onto customers by adding a surcharge to credit card transactions. This practice can help merchants offset processing costs, but it may discourage some customers from using credit cards for payment. Surcharging is subject to specific rules and regulations set by the card networks and local laws.
Example: A merchant might add a 3% surcharge to the total purchase amount for customers who choose to pay with a credit card.
These are the main types of fee structures for credit card processing. The best option for a particular merchant depends on factors such as transaction volume, average ticket size, and the types of cards they accept. It is important for merchants to carefully evaluate and compare pricing models to determine the most cost-effective solution for their business.
